Lopez v Commissioner of Inland Revenue
[2018] NZHC 2329
•5 September 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-109 [2018] NZHC 2329
BETWEEN VICENTE BADILLO LOPEZ
Applicant
AND
THE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 29 August 2018 Appearances:
No appearance for applicant
B McKenna for respondentJudgment:
5 September 2018
JUDGMENT OF KATZ J
This judgment was delivered by me on 5 September 2018 at 2.00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Crown Law, Wellington
Copy to: V Lopez (Applicant)
LOPEZ v THE COMMISSIONER OF INLAND REVENUE [2018] NZHC 2329 [5 September 2018]
Introduction
[1] Vicente Lopez is the sole director and owner of Galaxy Private Transport Ltd and Mars.XXX Ltd (“the companies”). The companies are in dispute with the Commissioner of Inland Revenue regarding their tax liability.
[2] Having offered Mr Lopez a number of opportunities to discuss the issues, on
8 December 2017 the Commissioner issued a disclosure notice and statement of position (“SOP”) in relation to the tax liability of the companies. The Commissioner has assessed Galaxy Private Transport Ltd as owing $155,733.96 in taxes and penalties, and Mars.XXX Ltd as owing $76,108 in taxes and penalties.
[3] SOPs from the companies were due in response by 8 February 2018. Neither company issued an SOP in reply. Rather, on 23 January 2018, Mr Lopez filed an originating application in this Court seeking a one year extension of time in which to reply to the Commissioner’s SOPs for the companies, pursuant to 89M(11) of the Tax Administration Act 1994 (“TAA”). In the alternative, Mr Lopez sought an extension on the basis that exceptional circumstances prevented him from issuing a detailed SOP, pursuant to s 89K of the TAA.
[4] The Commissioner has endeavoured to engage with Mr Lopez regarding the companies’ tax liabilities and has offered two extensions for filing SOPs, initially until
3 April 2018 and, more recently, until 9 September 2018. Mr Lopez has rejected both of those offers.
[5] On 1 June 2018, the Commissioner filed an appearance protesting the jurisdiction of this Court to hear Mr Lopez’s application, on procedural grounds. In the alternative, the Commissioner applies to strike out the proceeding on the basis that there is no reasonably arguable basis for the relief sought.
[6] On 7 June 2018, Fitzgerald J set down the Commissioner’s applications for a half-day hearing on 20 July 2018. Fitzgerald J directed Mr Lopez to file his notice of opposition and supporting affidavits on or before 28 June 2018. He failed to do so.
[7] The hearing of the Commissioner’s applications was subsequently adjourned by Palmer J, because 20 July 2018 was the due date of the birth of Mr Lopez’s child. Palmer J also gave Mr Lopez a further opportunity to file a notice of opposition and supporting affidavits, by Friday 17 August 2018.1 Despite that extension, Mr Lopez again failed to file the required documents. They had not been filed by the time this matter came before me for hearing on 29 August 2018. I declined a further adjournment request made by Mr Lopez shortly before the hearing. Mr Lopez did not appear at the hearing.
Procedural issues
[8] Rule 5.49 of the High Court Rules relates to the Commissioner’s objection to jurisdiction. A defendant who objects to the jurisdiction of the court to hear the proceeding may file and serve an appearance stating their objection and the grounds for it. They may then apply to the court to dismiss the proceeding on the basis that the court has no jurisdiction to hear it. The court hearing such an application may dismiss the proceeding if satisfied that it has no jurisdiction to hear and determine the proceeding.
[9] The Commissioner says the Court has no jurisdiction to hear and determine
Mr Lopez’s originating application on the following grounds:
(a)Mr Lopez has purported to file an originating application in circumstances where he requires the Court’s leave to do so under r 19.5. Without such leave the proceeding is invalid under r 19.7.
(b)The appropriate applicants are the companies, so there should be a separate application from each company, rather than a single application from Mr Lopez.
1 Due to an administrative oversight, it appears that Palmer J’s Minute was not initially sent to Mr Lopez. The relevant timetable directions were, however, notified to Mr Lopez in a letter sent to him by the Registry on 2 August 2018.
(c)Mr Lopez is not a barrister or solicitor and so he cannot bring the application on behalf of either of the companies under the Mannix rule, without leave of the Court.2
[10] There is considerable merit in each of these arguments. The issues identified in (a) and (c) above could, however, be remedied by a grant of leave, if the Court saw fit and the companies were parties to the proceeding (which they are not).
[11] The issue identified at (b) above, however, raises a fundamental jurisdictional impediment. Any issues between the Commissioner and the companies can only be resolved in proceedings to which they are parties. There is no dispute under Part 4A of the TAA between Mr Lopez and the Commissioner. Rather, any disputes are between the Commissioner and the companies. It is the companies, as the disputant taxpayers, that must seek an extension of time for the filing of an SOP under s 89M(11) of the TAA. They have not done so. Mr Lopez is the sole applicant named in the originating application.
[12] The current proceeding does not therefore provide a jurisdictional basis for the Court to grant an extension of time under s 89M(11) to the companies. Mr Lopez’s application therefore fails on procedural grounds. For completeness, however, I will also briefly consider the substantive merits of the extension application (putting to one side the fact that it was made by Mr Lopez, rather than the companies).
The Commissioner’s strike out application
[13] Rule 15.1(1)(a) provides that the court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading. The Court may dismiss a proceeding on the same basis.3
2 Re G J Mannix Ltd [1984] 1 NZLR 309 (CA).
3 High Court Rules 2016, r 15.1(2).
[14] The principles relevant to strike out as follows:4
(a)A striking-out application proceeds on the basis that the facts pleaded in the statement of claim are true, whether or not they are admitted. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b) The cause of action or defence must be clearly untenable.5
(c)The jurisdiction is to be exercised sparingly, and only in clear cases where the Court is satisfied it has the requisite material.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e)The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation.
[15] The Commissioner issued a disclosure notice and SOP to each company.6 The next step is for each company to issue an SOP to the Commissioner in reply.7 A taxpayer must provide the Commissioner with its SOP in response within two months of the disclosure notice.8 The companies’ SOPs were due on 8 February 2018.
[16] The TAA provides for two ways in which a taxpayer can submit an SOP out of time, both of which are relied on by Mr Lopez. The first is under s 89M(11), which provides:
(11) The disputant may apply to the High Court for more time within which to reply to the Commissioner’s statement of position if—
4 Attorney General v Prince [1998] 1 NZLR 262 (CA) at 267, endorsed by the Supreme Court in Couch v Attorney General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.
5 In Couch v Attorney General, above n 4, Elias CJ and Anderson J, at [33], said: “It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed”.
6 Tax Administration Act 1994, s 89M(1) and (3).
7 Tax Administration Act 1994, s 89M(5).
8 Tax Administration Act 1994, s 89AB(5).
(a)the disputant applies before the expiry of the response period for the Commissioner’s statement of position; and
(b)the disputant considers it unreasonable to reply to the Commissioner’s statement of position within the response period, because the issues in dispute had not previously been discussed between the Commissioner and the disputant.
[17] Mr Lopez’s application was filed before the expiry of the response period (on 23 January 2018). The grounds relied on do not include, however, an allegation that the issues in dispute were not previously discussed. Nor would such a submission, if made, appear sustainable in light of the evidence filed on behalf of the Commissioner.
[18] In particular, Gregory Mitchell, a customer compliance specialist with Inland Revenue in Auckland, deposes that he engaged in extensive correspondence with the companies and their agents in order to verify (or otherwise) the various tax positions taken by them. Mr Lopez, on behalf of the companies, was given multiple opportunities to provide documents, or in the absence of the documents, to discuss the audits and explain what the claimed GST expenses related to. At least three offers were made to Mr Lopez asking him to attend meetings with Inland Revenue.
Mr Lopez also failed to attend a conference as part of the statutory disputes process. Nevertheless, the Commissioner took information provided by the companies into account when assessing their tax liability. Input credits were allowed in the Commissioner’s SOP where clear explanations and/or verifiable proof had been provided of the claimed expenditures.
[19] On the basis of Mr Mitchell’s evidence, Mr Lopez has had ample opportunity to raise and discuss any issues in dispute with the Commissioner (through his delegates), but did not pursue those opportunities. Section 89M(11) does not therefore appear to apply.
[20] Mr Lopez also relies on the “exceptional circumstances” exception in s 89K, which provides an alternative basis on which a taxpayer may be able to file an SOP outside the applicable response period. That section provides the Commissioner with a discretion to accept an SOP from a disputant outside the applicable response period
if the Commissioner considers there are exceptional circumstances that prevented the disputant from issuing its SOP within time.
[21] The taxpayer must submit the outstanding SOP “as soon as reasonably practicable after becoming aware of the disputant’s failure”.9 If the Commissioner accepts that there are exceptional circumstances for the late filing, then the Commissioner may treat the disputant’s SOP for all purposes as if it had been given within the applicable response period.10
[22] An exceptional circumstance is defined as arising if:11
(i)an event or circumstance beyond the control of a disputant provides the disputant with a reasonable justification for not rejecting a proposed adjustment, or for not issuing a notice of proposed adjustment or statement of position, within the response period for the notice:
…
(b)an act or omission of an agent of a disputant is not an exceptional circumstance unless—
(i)it was caused by an event or circumstance beyond the control of the agent that could not have been anticipated, and its effect could not have been avoided by compliance with accepted standards of business organisation and professional conduct;
or
…
[23] Section 89K does not (at this stage at least) assist the companies, as it only becomes operative once the taxpayer has (belatedly) submitted an SOP to the Commissioner. Given that the companies have not yet submitted their SOPs, they are currently not in a position to request the Commissioner to exercise her discretion to treat their SOPs as if they had been given within the appropriate response period. The companies may, however, be able to make such a request in the future, if they are able to meet the statutory criteria set out in s 89K.
9 Tax Administration Act, s 89K(1)(b).
10 Tax Administration Act, s 89K(1).
11 Tax Administration Act, s 89K(3).
[24] Section 89K also allows the Commissioner to treat an SOP as having been given within the applicable response period if the Commissioner considers the disputant has a demonstrable intention to enter into or continue the disputes process at the time the disputant fails in issuing a statement of position.12 Again, however, the companies are not presently able to rely on this ground, as they have not yet filed their SOPs.
[25] Accordingly, even if Mr Lopez were able to surmount the procedural obstacle that I have identified at [11] above, the Commissioner’s strike out application would have succeeded on substantive grounds.
Result
[26] Mr Lopez’s originating application seeking a one year extension for the filing of the companies’ SOPs, filed on 24 January 2018, is dismissed. The Commissioner is awarded costs on a 2B scale basis.
Katz J
12 Tax Administration Act 1994, s 89K(1)(a)(ii).