Fisk v Turvey

[2023] NZHC 308

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2022-485-136

[2023] NZHC 308

UNDER

the Companies Act 1993, the Receiverships Act 1993, the Property Law Act 2007, the Land Transfer Act 2017 and Part 19 of the High Court Rules 2016

BETWEEN

JOHN HOWARD ROSS FISK and RICHARD JOHN NACEY

First Applicants

VEY GROUP LIMITED (IN
LIQUIDATION AND RECEIVERSHIP)
Second Applicant

AND

DARYN TURVEY

First Respondent

AOKAUTERE LAND HOLDINGS LIMITED

Second Respondent

Continued…

On the Papers

Counsel:

R L Pinny for the Applicants

D Turvey for the First Respondent
J K Mahuta-Coyle for the Second Respondent
K I S Naik-Leong for the Commissioner of Inland Revenue

Judgment:

27 February 2023

JUDGMENT OF GWYN J

(Implementation of Sale Orders)

FISK and NACEY v TURVEY [2023] NZHC 308 [27 February 2023]

… Continued

AND

DAVID VANCE and IAN MILLARD AS TRUSTEES OF THE ORANA TRUST

First Interested Party

LESLIE WILLIAM FUGLE
Second Interested Party

GREGORY JOHN SHERRIFF
Third Interested Party

AND

THE COMMISSIONER OF INLAND REVENUE

First Interested Non-Party

Introduction

[1]    On 27 September 2022 I gave judgment in favour of the applicants, the liquidators of Vey Group Limited (Vey) (in receivership and liquidation) (the Liquidators).1 I ordered that the Liquidators:

(a)sell a property owned by Vey, located in Webb Street, Wellington (the Property); and

(b)apply the sale proceeds in the manner set out in the court order which included that certain amounts be paid by the Liquidators to Aokautere Land Holdings Limited (ALHL), the second respondent, as second mortgagee.

(the Sale Orders)

[2]    On 22 December 2022 counsel for the Liquidators advised the Court that Vey had received a notice from the Commissioner of Inland Revenue (Commissioner), pursuant to s 157 of the Tax Administration Act 1994 (TAA), requiring Vey to pay the amounts payable to ALHL to the Commissioner (the Notice).

[3]    Counsel advised the Court that, on its face, the Liquidators appear to be subject to two conflicting legal obligations:

(a)Pursuant to the terms of the Sale Orders, the Liquidators are to “pay to ALHL” the amount of $1,185,458.37.

(b)Pursuant to the terms of the Notice, the Liquidators are required to pay any amounts payable to ALHL to the Inland Revenue immediately.

[4]    The Liquidators therefore considered it prudent to seek further directions from the Court as to whom the sale proceeds payable to ALHL under the Sale Orders ought to be paid in those circumstances.

1      Fisk v Turvey [2022] NZHC 2462.

[5]    Counsel for the Liquidators acknowledged that neither the Liquidators nor Vey have any interest in the substantive issue of whether the Commissioner or ALHL is entitled to be paid the funds.

[6]    The application came before Isac J as Duty Judge on 23 December 2022 and the Judge made the following interim directions:

(a)pending any further direction of the Court, the Liquidators are to hold the amounts payable under [6(b)] of the Sale Orders in the Trust Account; and

(b)the parties’ memoranda and this minute are to be served on the Commissioner of Inland Revenue and Aokautere Land Holdings Limited.

[7]    Counsel for ALHL filed a memorandum recording that ALHL wish to be heard on the directions sought by the Liquidators and whether the money should be paid to the Commissioner.

[8]    Following confirmation that the Commissioner had received the documents referred to in Isac J’s minute, I issued a minute on 30 January 2023, in which I granted leave for the Commissioner to be heard as an Interested Non-Party and to file a memorandum setting out relevant matters regarding the Notice.2 That order was made by consent. The minute also directed that the parties might respond to the Commissioner’s memorandum.

[9]    Subsequently, the Commissioner has filed a memorandum of  counsel  dated 9 February 2023 addressing the legal issues, supported by an affidavit of Maire Brid Clancy, a Customer Compliance Specialist at the Inland Revenue Department, who deposes that she is familiar with the tax affairs of Mr Leslie Fugle (the third interested party), ALHL and related entities.

[10]   Counsel for ALHL and Mr Fugle has filed a memorandum in response. The Liquidators do not wish to be heard further.

2      Fisk v Turvey HC Wellington CIV-2022-485-136, 30 January 2023 (Minute of Gwyn J).

Submissions in relation to the Notice

The Commissioner

[11]   The Commissioner submits that there is no conflicting legal obligation on the Liquidators. He contends that [6(b)] of the Sale Orders confirms that $1,185,458.37 is an “amount payable” to ALHL for the purposes of s 157 of the TAA. Accordingly, that amount should be paid to the Commissioner.

[12]   The Commissioner opposes ALHL being provided with an opportunity to comment on the application of the Notice and whether the funds payable to ALHL should be paid to the Commissioner, for three reasons:

(a)Section 157(7) of the TAA deems any deduction by a person in accordance with the Commissioner’s Notice to be have been made under the taxpayer’s authority.

(b)The applicability of s 157 of the TAA can only be the subject of an application for judicial review.

(c)Pursuant to s 109 of the TAA, ALHL’s income tax liability in the 2016– 2020 tax years is not able to be disputed outside of the disputes process provided for in pts 4A and 8A of the TAA. An attempt by ALHL to argue that the amount should not be paid to the Commissioner is a collateral attack on the Commissioner’s assessments made for ALHL in those tax years, which ALHL has not disputed through the proper procedure outlined in the TAA.

[13]   Maire Clancy’s evidence is that ALHL, a taxpayer, has made default in the payment to the Commissioner of income tax assessed to ALHL for the 2016–2020 tax years in the amount of $2,711,198.19. The Commissioner says ALHL did not dispute the default assessments made by the Commissioner for income tax in the 2016–2020 tax years within the four-month statutory response period.3 ALHL was advised a number of times that in order to dispute the default assessments it was required to issue

3      Tax Administration Act 1994, s 89AB(4) [TAA].

a notice of proposed adjustment (NOPA) and file returns of income for the assessment periods.

[14]   ALHL failed to issue a NOPA, in order to dispute the default assessments. Accordingly, s 109 of the TAA deems the income tax assessments made by the Commissioner in the 2016–2020 tax years to be correct in all respects and may not be disputed in a court or in any proceedings on any ground whatsoever.4 The Commissioner says ALHL is not able to dispute its income tax liability in this proceeding and argue that the amount sought under the Notice is not owed to the Commissioner. To do so would be a collateral attack on the Commissioner’s assessments.

[15]   The Commissioner notes that s 157(7) protects the Liquidators making the deduction pursuant to the Notice from any suit by ALHL, by deeming the Liquidators to have been acting under the authority of ALHL. Accordingly, any comments that ALHL may make in response to the Commissioner’s memorandum should not have any bearing on the Notice. Section 157A of the TAA provides that any person who fails to comply with the Commissioner’s Notice is liable to prosecution for an offence under pt 9 of the TAA.

[16]   The $1,185,458.37 deducted and paid to the Commissioner will be credited to ALHL’s income tax liability.5 The Commissioner says that, accordingly, while ALHL will not receive the funds, the payment will be applied to the benefit of ALHL and will reduce its outstanding income tax liability.

[17]   The general submission for the Commissioner is that it would cut across the statutory scheme and circumvent s 157 if defaulting taxpayers, despite being deemed to have given authority for a deduction, extraction or payment to be made, in accordance with the notice, are permitted to provide input into whether a notice issued under s 157 should be complied with in any proceeding other than a judicial review proceeding.

4      Tannadyce Investments Limited v Commissioner of  Inland  Revenue  [2011] NZSC 158, [2012] 2 NZLR 153 at [52]–[55].

5      TAA, s 157(1)(c).

[18]   Accordingly, the Commissioner asks that the Court direct the Liquidators to comply with the Notice and pay the $1,185,458.37 payable to ALHL as confirmed by the Sale Orders, to the Commissioner to be credited against ALHL’s outstanding income tax liability.

ALHL

[19]   Mr Mahuta-Coyle, counsel for ALHL and for Mr Fugle, says in response that the Commissioner’s chronology is “selective” and that the default assessments issued by the Commissioner were disputed by ALHL in prompt steps taken by it to file nil returns for the relevant income years. The Commissioner’s position is that because a NOPA was not also issued together with the returns, within the four-month response period, the default assessments are now binding and payable. ALHL disagrees with that position.

[20]   Counsel for ALHL sets out what it says is a more detailed history of ongoing tax litigation between Mr Fugle and his associated entities and the Commissioner, including a contemplated prosecution of Mr Fugle and/or associated companies by the Commissioner. ALHL disputes that the default assessments are binding and payable.

[21]   Mr Mahuta-Coyle says that ALHL will file an application for judicial review in respect of the Notice. Counsel submits that the issue of the Notice after nine months of litigation [the Sale Orders proceeding] of which the Commissioner was aware is an affront to the process of justice and inconsistent with the Commissioner’s obligations as a model litigant. ALHL submits that the Commissioner’s position in the Sale Order proceeding (that is, it took no active part) gave all other parties the reasonable expectation that it would abide the outcome determined by the Court.

[22]   Counsel says that, on that basis, ALHL will allege in judicial review proceedings:

(a)Unreasonableness. The Commissioner’s issue of a s 157 notice, in the context of the Sale Orders litigation, amounted in substance to a collateral attack on the Court’s judgment.

(b)Legitimate expectation. Mr Fugle, ALHL and associated entities are under current audit by the Commissioner, for criminal prosecution. For that reason the Commissioner has informed companies associated with Mr Fugle that they are not required to issue a NOPA, because to do so would impact on their fair trial rights.

(c)On that basis a NOPA was not required to be issued by ALHL within the four-month response period as that would impact fair trial rights.

(d)The Commissioner cannot take collection action in respect of default assessments issued pending the resolution of any criminal proceedings and any s 157 notice issued now is ultra vires.

[23]   Counsel relies on the Commissioner’s Statement CS20/04.6 That Statement says:7

4.The Commissioner considers that it is important to ensure that once prosecution has commenced or is contemplated a taxpayer is not

compelled to respond to an assessment or disputes document issued by the Commissioner.

5.The general approach is that when criminal proceedings have commenced or are contemplated the taxpayer will be advised of that position before they are next required to issue a disputes document to commence or continue the Disputes Process. For example, by issuing a NOPA in response to an assessment.

[24]    Mr Mahuta-Coyle submits that means the Commissioner cannot take collection action in respect of default assessments issued pending the resolution of any criminal proceedings and any s 157 notice issued now is ultra vires.

[25]   On that basis, counsel proposes that ALHL and Mr Fugle have the opportunity to file evidence in reply to the Commissioner’s evidence, following which the Court would convene an oral hearing.

6      Commissioner of Inland Revenue “CS 20/04: The Disputes Resolution Process and Fair Trial Rights” (22 July 2020) Inland Revenue < [4]–[5].

[26]   Counsel submits that, pending those steps, the Liquidators ought to be ordered to pay the sum of $1.185 million into the Court to be held on the condition that:

(a)Mr Fugle and ALHL file any proceeding for judicial review within  10 working days; and

(b)ALHL also file an application for interim orders in order to determine possession of the disputed monies pending the conclusion of those proceedings.

Discussion

[27]   In the absence of income tax returns from ALHL, default assessments were issued by the Commissioner on 2 February 2021, for $2,711,198.19 for the 2016–2020 tax years. If ALHL wished to dispute the assessments, it was required to file the returns and a NOPA within four months of the date of assessment. It did not do so. ALHL does not appear to dispute that a NOPA was not issued and I do not understand counsel for ALHL to assert that ALHL failed or elected not to issue a NOPA at that time because of any threat of prosecution by the Commissioner.

[28]   Section 109 of the TAA provides that, except in objection proceedings under pt 8 or a challenge under pt 8A of the TAA, no disputable decision (including an assessment)8 may be disputed in a court or any proceedings on any ground whatsoever. Every disputable decision and all of its particulars are deemed to be are to be taken as being, correct in all respects. As the Supreme Court said in Tannadyce:9

[53]  … so the effect of s 109 is that no assessment or other disputable decision, as defined, may be disputed in any court or in any proceedings on any ground whatsoever, except in proceedings taken under the Act. It is clear that by means of s 109 Parliament was concerned to ensure that disputes and challenges capable of being brought under the statutory procedures were brought in that way and were not made the subject of any other form of proceeding in a court or otherwise.

[54]      The words “on any ground whatsoever” must have been designed to emphasise the comprehensive nature of the embargo on bringing proceedings outside the statutory framework. …

8      TAA, s 3.

9      Tannadyce v Commissioner of Inland Revenue, above n 4, at [53]–[55].

[55]      The advantage Parliament saw in this approach must have been that, whatever the claimed ground of error, illegality or invalidity, a hearing authority, …is empowered to adjudicate upon it. Furthermore, the hearing authority can go on in the same proceeding, as far as necessary or appropriate, to determine whether the Commissioner’s assessment is correct and, if not, what the correct assessment ought to be. There is thereby no potential for separation of matters of legality from matters of correctness. This leads to a much more efficient and satisfactory process overall, particularly when regard is had to the various time limits that apply throughout the tax administration processes.

[29]   ALHL did not dispute the assessments under pt 8A. ALHL has therefore made default and the Commissioner has power to issue a notice under s 157 of the TAA. The Liquidators, having received the Notice, are deemed to be acting under the authority of ALHL and acting in accordance with the Notice and are statutorily obliged to comply with the Notice or face prosecution.

[30]   There is no ability for a defaulting taxpayer to circumvent s 157, other than by judicial review.10 That is ALHL’s only recourse. This application concerns clarification and implementation of the Sale Orders. It is not an appeal against the Sale Orders. Nor is it a judicial review of the Notice. It is not the vehicle for a substantive hearing of ALHL’s complaints relating to the Commissioner’s assessment process which provided the basis for the enforcement/collection step of the s 157 notice.

[31]   Having said that, I observe that ALHL’s proposed judicial review is fraught with difficulty.

[32]   The first proposed ground relates to an alleged failure by the Commissioner to act as a model litigant. However, the Commissioner was not a party to the Sale Orders proceeding. The Commissioner was named as an interested non-party on 30 January 2023, solely for the  purpose  of  being  heard  on  the  Liquidator’s  application  of 22 December 2022.

[33]   In those circumstances it cannot be said that any obligation, as an agency of the Crown, to act as a “model litigant” in respect of the issue of the s 157 notice can apply.

10     Hieber v Commissioner of Inland Revenue [2000] 3 NZLR 718 (HC).

[34]   Section 157 itself sets no time limit on the issue of a Notice. Section 157(1) provides: “… the Commissioner may from time to time by notice… require any person to – …”.

[35]   ALHL does not point to any other possible source of an obligation on the Commissioner to give notice in the Sale Orders proceeding of an intention to issue a s 157 notice if the Court were to order sale of the property and payment of any proceeds of sale to ALHL.

[36]   In his article “The Extensive Powers of the Commissioner of Inland Revenue in Assessing and Collecting Tax  Debts”, Joel Manyam discusses the ways  in which s 157 notices may be frustrated.11 It seems to me that the author’s statement of the position as to timing of a s 157 notice must be correct: “The unique powers enabling the Commissioner to collect tax debts pursuant to section 157 do not require prior notification to the taxpayer before being used.”12 Manyam cites Mansfield J in Woodroffe & Anor v DFC of T, in respect of the Australian equivalent provision:13

In my view, such an intention is clearly evidenced by section 218 itself. Its object is to secure the payment of taxation liability. It would frustrate the fulfilment of that object if such advance notice were required to be given, which might facilitate the movement of the funds the subject of the proposed notice.

[37]   While counsel for ALHL in his memorandum has couched the other heads of the proposed judicial review application in language which does not directly dispute the Commissioner’s assessments, the indirect effect of what is proposed is to do exactly that. The grounds have all the hallmarks of a collateral attack on the assessments.

[38]   The other three proposed grounds of review depend on ALHL invoking its fair trial rights in respect of what it says is a current or contemplated prosecution of ALHL by the Commissioner. The particulars of the prosecution are sparse. It is not clear from

11     Joel Manyam “The Extensive Powers of the Commissioner of Inland revenue in Assessing and collecting Tax Debts” (2001) 9(9) Wai L Rev 91.

12     At 129.

13     Woodroffe v Deputy Commissioner of Taxation [2000] FCA 1379, 2000 ATC 4654 (footnotes omitted).

ALHL’s memorandum whether such a prosecution relates to ALHL itself and, if so, for what tax years.

[39]   ALHL appears to be seeking to give the Commissioner’s Statement retrospective effect. ALHL previously failed to take necessary steps to dispute the Commissioner’s assessment, resulting in the default assessments in respect of the 2016–2020 tax years It is not clear whether ALHL is asserting that its failure or refusal to issue a NOPA in relation to the default assessments for the 2016–2020 income tax years was because of a then current or threatened prosecution, thus allowing ALHL to take advantage of the protection of fair trial rights, as reflected in the Commissioner’s Statement. There is nothing before me to suggest that was the case; nor is it clear whether there was in fact a current or prospective prosecution against ALHL at that point.

[40]   ALHL says that because a prosecution is now in prospect, the Commissioner cannot act on the previous default assessments. I do not accept that submission. It seems to me to be clear from the Commissioner’s Statement that it is prospective:14

The general approach is that when criminal proceedings have commenced or are contemplated the taxpayer will be advised of that position before they are next required to issue a disputes document to commence or continue the Disputes Process. For example, by issuing a NOPA in response to an assessment.

[41]   It cannot be relied on retrospectively in respect of a decision, or failure, to issue a NOPA in response to an assessment which has now been completed. The protection set out in the Statement applies as an “exceptional circumstance” which prevents a taxpayer from responding to the assessment or notice within the applicable response period. That is not the case here.

[42]In the Manyam article, the author comments:15

Other circumstances in which a notice could be frustrated is where a taxpayer objects to or challenges an [income tax] assessment and such objection is allowed either in proceedings before the TRA or the High Court. This necessarily raises the issue of an assessment being issued and a notice also being served close in time so as to deprive the taxpayer of its rights effectively

14     Commissioner of Inland Revenue, above n 6, at [5] (emphasis added).

15     Manyam, above n 11, at 127.

to object to or challenge the assessment. It appears that the taxpayer will be given the chance successfully to object to or challenge the assessment rather than have such a right forfeited by a statutory notice.

[43]   Manyam also refers to the decision of in Miller v Commissioner of Inland Revenue, where Blanchard J said, in relation to an analogous provision:16

Nevertheless, it does not follow that the Commissioner would be justified in enforcing his post-assessment right to non-deferrable tax under s 34 [section128 and section 138I of the TAA], pending the conclusion of the objection procedures, except in such a way as may be necessary to protect the position of the revenue.

[44]   That is not the situation here. The objection procedures have been concluded. It cannot be that in the absence of the issue being raised at the time — and possibly even in the absence of any prospective prosecution at that point — ALHL can now say that the Commissioner cannot take collection action in respect of the default assessments for the 2016–2020 tax years.

[45]   Under s 157(7) of the TAA the Liquidators are deemed to be acting under the authority of ALHL. That being so, ALHL has no right in this proceeding to be heard on the Notice, beyond the written submissions already allowed.

Outcome

[46]   The Sale Order which the Liquidators seek to be clarified requires the Liquidators:

(b)       To pay to ALHL:

…

(ii)the amounts owing by the Company to ALHL pursuant to the loan agreement dated 9 December 2016.

[47]The Liquidators are directed to comply with the Notice and pay the amount of

$1,185,458.37, being the amount payable to ALHL, to the Commissioner to be credited against ALHL’s outstanding income tax liability. That is consistent with the

16     Miller v Commissioner of Inland Revenue (1993) 15 NZTC 10,187 (HC) at 10,206, cited in Manyam, above n 11, at 106.

effect of s 157(7) of the TAA that, in doing so, the Liquidators are deemed to be acting under the authority of ALHL, and thus indemnified in respect of that payment.

Gwyn J

Solicitors:

Crown Law, Wellington Bell Gully, Wellington Dewhirst Law, Wellington