M and J Wetherill Company Limited v Taxation Review Authority HC Auckland Cp1274-Sw00
[2001] NZHC 351
•9 May 2001
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP1274-SW00
IN THE MATTER of the Taxation Review Authorities Act 1994, and the Taxation Review Authority Regulations 1994 and/or the Taxation Review Authority Regulations 1998
APPLICATION FOR JUDICIAL REVIEW
BETWEEN M &J WETHERILL COMPANY LIMITED & ORS
Plaintiffs
AND TAXATION REVIEW AUTHORITY
First Defendant
AND COMMISSIONER OF INLAND REVENUE
Second Defendant
Date of hearing: 12-14 March 2001
Judgment: 9 May 2001
Counsel: G J Judd QC for plaintiffs
M J Ruffin for defendants
JUDGMENT OF O’REGAN J
Table of Contents
| Page | |
| Introduction | 03 |
| Background | 03 |
| Issues to be considered | 03 |
| Ancillary matters | 08 |
| Effect of this judgment on the decision of Baragwanath J | 08 |
| Which regulations apply? | 08 |
| The legislative framework | 09 |
| The scheme of the legislation | 09 |
| Does s 134 have primacy? | 11 |
| Does a lacuna exist? | 11 |
| Time limit on applying for leave to refer to the High Court | 13 |
| Extension of time: exceptional circumstances | 18 |
| What are exceptional circumstances? | 18 |
| Regulation 6(4): what are reasonable grounds? | 21 |
| Interaction of regulation 6(4) and regulation 8 | 25 |
| Commissioner’s objections to this application for review | 26 |
| Regulation 6(4) - was this an abuse of process? | 26 |
| Did the TRA proceedings cure earlier procedural irregularities? | 27 |
| Estoppel | 28 |
| Decisions of the TRA | 28 |
| TRA decision in Case U35 | 28 |
| Analysing the taxpayer’s criticisms of the TRA decision | 31 |
| TRA decision in Case U41 | 32 |
| The decision not to state a case for the High Court | 34 |
| The decision to strike out the appeal to the High Court | 38 |
| The nature of the decision in Case U35 | 39 |
| Relief claimed by the taxpayer | 44 |
| Costs | 46 |
Introduction
[1] This case involves applications for judicial review of two decisions of the Taxation Review Authority (TRA). These are Decision 7/2000 (reported as Case U35 in (2000) 19 NZTC 9330) and Decision 13/2000 (reported as Case U41 in (2000) 19 NZTC 9380). I refer to them as Case U35 and Case U41 in this judgment.
Background
[2] The TRA decisions, which are the subject of the present judicial review proceedings, were made in respect of 28 cases. Those applicants are all plaintiffs in the present proceedings. The issues involved in all of the cases are essentially the same. The TRA effectively treated them as one application for that reason. It was agreed by counsel in this case that I should do the same, although Mr Ruffin reserved the right to argue in respect of some of the objectors that their points of objection had been filed out of time. That reservation does not affect the current proceedings. I was provided with a copy of the material which was before the TRA in relation to one of the objectors, J M Webster Limited (“Webster”). This material is, at least in relation to matters relevant to the current proceedings, apparently the same as the other 27 objections. In this judgment I will refer only to the Webster application, but the judgment applies to all 28 cases. References to “the taxpayer” and “the objector” should be interpreted in the same way.
[3] The saga begins back in 1996 when the taxation agent for the objectors, Mr J G Russell, requested the Commissioner of Inland Revenue (“the Commissioner”) file a case stated with the TRA for determination of the taxpayer’s objections to tax assessments issued earlier by the Commissioner. The chronology of events from that point onwards is as follows:
Points of objections were received by the Commissioner on 12 or 13 May 1996.
A case was stated and filed in the High Court on 12 August 1996, which was within 3 months of the receipt of the objections.
The Commissioner’s application for leave to file in the High Court was filed on 8 October 1996.
The Commissioner stated and filed an amended case against Webster in the High Court, pursuant to s 136(15) Tax Administration Act 1994 on 28 February 1997.
The cases again came before Salmon J at a directions conference on 3 March 1997.
By minute dated 14 May 1997, Baragwanath J became involved in this litigation.
By consent, the Commissioner’s applications for leave in respect of all stated cases which the Commissioner wanted to have dealt with in the High Court, were heard before Baragwanath J on 3 June 1997.
Again by agreement, all stated cases were to be treated by the parties as having come within the decisions of Baragwanath J on 3 June 1997 and all subsequent hearings.
The taxpayer made an application, dated 14 July 1997, asking the TRA to allow its objection as a consequence of the Commissioner’s failure to state and file a case with the TRA disputing the objection within the statutory 3-month time limit.
On the recommendation of Baragwanath J, the Commissioner filed a memo dated 30 September 1997, relating to the progress of the hearing of cases by the TRA.
There were directions conferences before Baragwanath J on 13 October 1997 and 4 November 1997.
On 6 November 1997, the Commissioner applied to the TRA for an extension of time to enable the cases stated to be brought against the taxpayer.
The taxpayer filed a notice of opposition to the applications for directions and extensions of time on 2 February 1998.
Baragwanath J delivered an oral judgment on 3 February 1998 in which he declined the application for removal of the case stated to the High Court. He also declined to dismiss the Commissioner’s case altogether however, and left open the possibility that the High Court would hear the case if the TRA refused to accept it.
Between 23 February and 4 March 1998, the TRA heard both the Commissioner’s application to allow an extension of time to file cases before it, and the taxpayer’s application that its objection be allowed.
On 4 February 2000, the TRA granted an extension of time to the Commissioner and dismissed the taxpayer’s application for its objection to be allowed.
On an undisclosed date, though obviously between 4 February and 22 March 2000, the taxpayer filed a notice of appeal to the High Court against the 4 February decision.
On 22 March 2000, the Commissioner applied to the TRA to strike out this appeal to the High Court.
On 14 April 2000, the taxpayer asked the TRA to state a case for the High Court.
On 9 June 2000, the TRA refused to state a case, and struck out the appeal to the High Court.
In the present proceedings, which were heard 12-14 March 2001, the taxpayer applied to the High Court for judicial review of the decisions of the TRA on 4 February and 9 June 2000.
[4] Three significant points arise out of the chronology:
[a] The Commissioner did not file cases stated with the TRA but instead sought to file cases stated with the High Court on 12 August 1996, barely within the three month time period provided for by s 136(9) of the Tax Administration Act. Later, on 8 October 1996, the Commissioner applied for leave of the High Court, under s 136(4) of the Tax Administration Act, for the objections to be referred directly to the High Court.
[b] The application for leave came before Baragwanath J. He indicated, in a minute dated 13 October 1997, that he believed it would be preferable for the cases to be heard by the TRA rather than the High Court. He noted that the Commissioner would need an extension of time to file the cases stated in the TRA and that this extension could only be granted in “exceptional circumstances”. Because he wanted to avoid the objection falling between the jurisdiction of the High Court or the TRA, he did not dismiss the Commissioner’s applications for leave, but rather adjourned them pending the outcome of the application for extension of time in the TRA.
[c] The Commissioner did not immediately move to apply for the required extension of time. However, the objector filed an application on 14 July 1997 that its objections be allowed pursuant to regulation 6(4) of the Taxation Review Authority Regulations 1994. Eventually, the Commissioner filed the applications for extension of time with the TRA on 6 November 1997.
Issues to be considered
[5] This is an application for judicial review. The taxpayer has not alleged the TRA acted unreasonably or in denial of natural justice. Its complaint is that, in the two decisions which are the subject of this application, the TRA made a number of errors of law.
[6] The taxpayer contends it is entitled to review of the TRA decisions on the grounds that the TRA misconstrued and wrongly applied the Tax Administration Act. In Case U35, the taxpayer alleges the TRA was mistaken in law to allow the Commissioner an extension of time in which to file and state a case in the TRA. Its failure to allow the taxpayer’s objection was thus based on an error of law. Further, the taxpayer argues that in Case U41 the TRA exceeded its authority in purporting to dismiss the appeal to the High Court and was mistaken as to the nature of its obligation to state a question of law for the determination of the High Court.
[7] All of these alleged errors of law must be assessed against the Tax Administration Act. The relevant provisions of the Act are complex, and it is essential for the determination of this application to establish how the legislation works and the requirements it imposes. In this judgment I therefore examine the disputed statutory provisions and regulations in order to determine how they fit together and how they are to be construed. The following aspects of the legislation will be considered:
• the overall scheme of the legislation, but, in particular, how the provisions that allow the Commissioner to refer a case to the TRA or to the High Court operate;
• whether s 134 of the Tax Administration Act has primacy within the legislative scheme, that is, whether it requires the Commissioner to treat the TRA as the primary authority, with the High Court acting as an avenue for the resolution of objections only in specific circumstances;
• whether the legislation can be construed as a cohesive functioning whole, or whether a lacuna exists which needs to be filled;
• what the necessary preconditions to the exercise of the power to grant an extension of time to the Commissioner (in which to file and state a case in the TRA) are, and how ‘exceptional circumstances’ should be understood;
• how the regulations which govern, first, the granting of an extension of time and, second, the allowing of objections that are uncontested by the Commissioner, interact.
[8] A sound understanding of the legislative framework is necessary to properly analyse and assess the TRA’s two contested decisions. However, before this exercise is entered into, I must consider the Commissioner’s argument that this entire application for review is unsound and should not be permitted to proceed. The Commissioner raises three arguments as to why this is so. Each will be considered in turn:
• the application for review by the taxpayer is an abuse of process;
• placing all relevant information and material before the TRA had the effect of curing any procedural irregularities that may have occurred earlier in the process (note that if correct this allegation will undermine only the taxpayer’s complaint in respect of Case U35, not Case U41);
the taxpayer is estopped from bringing review proceedings.
[9] Finally, the decisions of the TRA have to be analysed in detail. The reasons for the decisions, and thus the TRA’s appreciation of the scope and extent of its power under the Tax Administration Act and relevant regulations, are considered against the legislative framework in order to determine whether the TRA did, in fact, make any errors of law.
Ancillary matters
Effect of this judgment on the decision of Baragwanath J
[10] To ensure there is no misunderstanding, I say at the outset that this judgment does not affect in any way the outcome of the application for leave to have the taxpayer’s objection referred directly to the High Court, which Baragwanath J adjourned on 13 October 1997. That application has not been finally dealt with, and there is nothing in the matters with which this judgment deals that limits the way in which that application may be dealt with if it is revived.
Which regulations apply?
[11] A preliminary matter addressed to me by Mr Judd was the question of which Taxation Review Authority Regulations should apply. The choice is between the 1994 and 1998 Regulations. It is common ground amongst the parties that the 1998 Regulations do not differ materially from the 1994 Regulations in any way which affects the outcome of this case. As the question is of no relevance to the determination of this review application, I do not find it necessary to determine which set of regulations actually applied in this case.
[12] As the case was argued in the TRA, and before me, by reference to the 1994 Regulations, I will refer throughout this judgment to the 1994 Regulations. To avoid confusion, I should emphasise that whenever this judgment refers to the 1994 Regulations the judgment is equally applicable under the equivalent provision in the 1998 Regulations. Of particular importance, regulations 6(4) and 8(2) of the 1994 Regulations are equivalent, respectively, to regulations 22(4) and 25(2) of the 1998 Regulations.
The legislative framework
The scheme of the legislation
[13] In order to evaluate the competing arguments in this case, it is necessary to understand the scheme of Part VIII of the Tax Administration Act, which deals with objections by taxpayers to assessments made by the Commissioner. The process for disputing an assessment made by the Commissioner is referred to in this legislation as an “objection”. Once a taxpayer makes an objection, it is considered by the Commissioner, and if he does not allow it in full, the taxpayer can require that the matter be taken further.
[14] In most situations, the objection is then referred to the TRA, but there are some circumstances in which the objection is referred directly to the High Court. The precise interaction of these provisions is at the heart of the dispute in this case.
[15] The starting point for the analysis is s 134(1) of the Tax Administration Act, which says:
“If an objection is not wholly allowed by the Commissioner, the objector may, within 2 months after the date on which notice of the disallowance is given to the objector by or on behalf of the Commissioner, by notice in writing to the Commissioner require that the objection be heard and determined by a Taxation Review Authority, and in that event the objection shall be heard and determined by an Authority, and the Taxation Review Authorities Act 1994 shall apply in respect of the institution, hearing, and determination of the proceedings on the objection.”
[16] If this section is read in isolation, it appears to require that the TRA and only the TRA should hear and determine the objection. That impression is reinforced by the strong wording of s 134, which provides that the taxpayer may “require” the objection to be heard and determined by the TRA, and later refers to the fact that “the objection shall be heard and determined by [the TRA]” (emphasis added).
[17] However, this apparent certainty is clouded when s 136 is examined. Section 136 says that certain types of objection which have not been allowed by the Commissioner “may be referred directly to the High Court by way of case stated in accordance with this section”. Significantly, s 136(1) is said to apply “notwithstanding anything in this Part”. Both s 134 and s 136 appear in Part VIII, so s 136 applies notwithstanding the emphatic language in s 134.
[18] In some cases, the relationship between the two sections is relatively easy to discern. Where the objection relates to a question of law only (s 136(2)), or where the taxpayer and the Commissioner both consent (s 136(4)), the reference to the High Court occurs when the case is stated for the High Court. It is clear from reading s 136(9) that, in such cases, the High Court becomes seized of the matter and s 136 applies to the exclusion of s 134.
[19] Confusion arises where the objection does not rest on a question of law only, and the taxpayer and the Commissioner cannot agree that the matter should be referred to the High Court. If it is only the Commissioner who wants the matter referred to the High Court, as in this case, then s 136(4) says the objection shall be referred directly to the High Court:
“. . .with the leave of that Court granted on the application of . . . the Commissioner upon the ground that in the opinion of the Court, by reason of the amount of tax in dispute between the parties, or of the general importance of the matter, or of its extraordinary difficulty, or for any other reason it is desirable that the objection be heard and determined by the High Court instead of by [the TRA].”
[20] If leave is granted by the High Court, then no great difficulty arises. But in this case, the application for leave filed by the Commissioner was not granted by Baragwanath J (although it was not declined either - the matter was adjourned and remains so). This meant pursuing the s 136 path of referral to the High Court was, at least temporarily, closed to the Commissioner. He could not pursue, as of right, the alternative route offered by s 134 because the time limit for stating a case with the TRA, mandated by s 134 and the 1994 Regulations, had passed.
Does s 134 have primacy?
[21] The taxpayer argues that, when the whole statutory scheme is considered, the “TRA route” has primacy by virtue of the mandatory language of s 134, which contrasts with the permissive language of s 136 and the need to obtain leave under that section. I accept that in situations where leave is required to state a case to the High Court under s 136, the default position is s 134 and referral to the TRA. This is mandatory and can be put to one side only if leave is given to the Commissioner, under s 136, to state a case to the High Court.
Does a lacuna exist?
[22] Mr Ruffin argued the convoluted interaction of ss 134 and 136 indicated the presence of a lacuna in the statutory scheme. The TRA found there was such a lacuna and Baragwanath J commented on the issue in his decision of 16 October 1997. The conundrum in which the Commissioner found himself, because of this apparent lacuna, was the key reason for Baragwanath J’s decision not to dismiss the application for leave to have the matter heard by the High Court. He wanted to avoid the matter falling between the jurisdictions of the High Court and the TRA.
[23] Mr Judd argued there was no lacuna; the problems that the Commissioner faced were largely of his own making or, at least, could have been avoided by actions within the Commissioner’s control. In particular, he pointed out that:
The Commissioner notified Mr Russell, by letter dated 15 May 1996, of his intention to state a case for the High Court rather than the TRA. He could have applied for leave at that time - or, at least, prepared to file an application for leave at a time which allowed the Court to deal with the application before the expiration of the three month time period.
Mr Russell made it clear to the Commissioner, in a letter dated 21 May 1996, that he objected to this and would use his right under regulation 6(4) to have the objection allowed.
Notwithstanding that, the Commissioner filed the case stated at the High Court on 12 August 1986 which was at the very end of the three month period within which it had to be filed under s 136.
The Commissioner did not apply for leave at the time the case stated was filed but did so on 8 October 1996, nearly two months after the expiry of the three month period.
[24] Mr Judd pointed out that the Commissioner could have preserved his fallback position (stating a case with the TRA) by applying to the TRA for an extension of time for filing with the TRA, at the same time as he filed the case stated with the High Court. He submitted that if the Commissioner had done so, the TRA would have been likely to grant an extension until the application for leave to the High Court had been determined.
[25] Mr Ruffin argued that the Commissioner should not be expected to submit to the jurisdiction of the TRA in circumstances where he has made it plain to the taxpayer that he wishes the matter to be dealt with by the High Court. It was conceded by Mr Judd that a back up application to the TRA under s 134 would necessarily frustrate the Commissioner’s wish to have the matter dealt with by the High Court, because it would trigger the procedure in s 134 which would then exclude the procedure under s 136. However, he said that applying to the TRA for an extension of time did not involve submitting to the TRA’s jurisdiction - rather, it reflected the reality that a referral of the matter to the High Court was not certain and that resort to the TRA may be required in the future.
[26] In my view, a consideration of the statutory scheme of Part VIII of the Tax Administration Act 1994 does not lead to an inevitable conclusion that there is a statutory lacuna, as Mr Ruffin submitted. It is true that s 136(20) deals explicitly with the situation where the objector wants the matter referred to the High Court, but the Commissioner disagrees. In an ideal world, an equivalent provision may have been included to deal with the situation where the roles are reversed, as is the case here, but the omission of such a provision does not amount to a lacuna.
[27] I do not accept that this is a situation like the one facing the Court of Appeal in Northland Milk Vendors Assoc v Northern Milk Limited [1988] 1 NZLR 530, where the Court found there was an apparently unintended lacuna and effectively filled it. In this case, the legislation can be interpreted sensibly without such action on the part of the Court. The Commissioner could, by his own actions, have avoided any adverse consequences from the lack of clarity over how ss 134 and 136 interact when leave is required to state a case under s 136.
[28] Such an interpretation is consistent with the overall scheme of Part VIII, which requires strict time limits to be observed by objectors and the Commissioner. Failure to comply with those time limits triggers the sanctions which exist in regulation 6(4) and s 136(13). In this case, the Commissioner cannot complain that the use of those sanctions was a surprise, since he was warned right at the outset that the objectors considered this to be an avenue available to them, which they would use if necessary.
[29] I agree with Mr Judd that it would have been desirable for the Commissioner to have applied for leave to have the objection dealt with by the High Court before the expiry of the three month period for the filing of the case stated. (Mr Judd also submitted it was obligatory, not just desirable, and I will come to that later). If leave had been sought early enough, the application for leave could possibly have been dealt with before the end of the three month period, leaving the Commissioner the option of going to the TRA if leave was declined by the High Court. If the Commissioner believed the application for leave would not be dealt with during that three month period, then he could have applied to the TRA under regulation 8 for an extension of time to preserve his position.
Time limit on applying for leave to refer to the High Court
[30] Mr Ruffin pointed out that there is no specified period within which the Commissioner must apply for leave. This is unlike almost every other step in the process, where explicit time limits are specified. Mr Judd argued that construing the legislation so as not to impose any time limit on the Commissioner to apply for leave of the High Court was inconsistent with the scheme of this part of the Act, which in all other respects imposed very rigid timetables on both the Commissioner and the taxpayer, with the sanction that an objection could be allowed if the timetables were not met by the Commissioner (regulation 6(4) and s 136(13)). He argued that the logical, if extreme, extension of Mr Ruffin’s position meant the Commissioner could defer filing for leave for years.
[31] Mr Ruffin’s response was that once the case was stated for the High Court the matter would come under the High Court case management system, which would ensure the Commissioner was not permitted to delay things in that way. He pointed out that the lack of any timetable for applying for leave can be contrasted with the rigid timeframes elsewhere, and can be taken as an indication of an intention by the Legislature that the application for leave was something which should be dealt with under the normal High Court Rules rather than under any timetable in this legislation.
[32] He noted that the judgment of Baragwanath J of 3 February 1998 gives no indication that the Judge considered the fact that the application for leave was filed after the date on which the case stated was filed (and after the date on which the case stated was required to be filed under s 136) was in any way exceptional.
[33] Mr Judd supported his submission by reference to s 136(9), which sets the three month deadline for the filing of the case stated, but which is expressed to apply “where under this section an objection is to be referred directly to the High Court”. He argued that where the leave of the Court is required for the objection to be referred directly to the High Court, then, where no leave has been granted (and especially where, as in this case, none had been applied for), it cannot be said that the objection is to be referred directly to the High Court. This stands in contrast to the situation where the matter involves a question of law only or where the parties have consented, in which case it is known that the application is to be made to the High Court, and the alternative of an application to the TRA has been effectively ruled out.
[34] Mr Judd argued that if the Commissioner filed for leave during the three month period the fact that an application for leave has been made would constitute reasonable grounds for not filing in the TRA. Consequently this would justify an extension of time under regulation 8 and, presumably, would also justify rejection of any application under regulation 6(4). He conceded that where an application for leave has been filed during the three month period it is credible to say that the matter “is to be” referred directly to the High Court so that s 136(9) is brought into play.
[35] The converse argument is that where no application for leave is made during that three month period, as happened in this case, there is no basis for saying that the matter “is to be” referred directly to the High Court; in those circumstances, the case stated is, to use Mr Judd’s term, “a meaningless collection of papers” which has no status in the High Court and does not seize the High Court with jurisdiction. This is an important point for reasons which I will come to later.
[36] I confess to some difficulty in discerning exactly what the intention of the Legislature is in relation to cases where the Commissioner wants to refer to the High Court, but in respect of which leave is required. Mr Judd argued that the application for leave should be filed within the three month period for the filing of the case stated and I accept that there is some logic in that position. He put the argument this way:
“Because the Case has no standing in the High Court in the absence of a leave application to which will be an adjunct, and s 136(9) requires the Case to be filed within three months, it also necessarily follows that the leave application has to be filed within the same period.”
[37] However, s 136 is completely silent on the timing of the application for leave. This contrasts with the situation where it is the objector who wishes to refer the matter directly to the High Court. In that case, s 136(20) provides that if the objector does not apply for leave within one month after the Commissioner gives notice objecting to the matter being referred to the High Court, then the matter is automatically referred to the TRA. There is no equivalent provision dealing with the position of the Commissioner.
[38] I do not think it can be taken from the language of s 136 that the Legislature intended a failure to apply for leave within the three month period for stating a case to the High Court (in circumstances where the Commissioner had met the statutory time period for filing the case stated itself), necessarily left the Commissioner in a no-man’s land between the TRA and the High Court. Clearly, Baragwanath J was of the same mind, as he considered the questions relating to the application for leave purely on the grounds of which was the better forum to deal with the matter (the TRA or the High Court). He believed that it was open to him to grant leave, and has left open the possibility that this will occur if the matter cannot proceed to hearing at the TRA.
[39] Mr Ruffin suggested the legislature’s failure to specify whether leave must be sought in the three month period was a lacuna that I should fill, citing Northern Milk and Re Bank of New Zealand [1997] 2 NZLR 239. I do not think it can be assumed or established that there was any legislative oversight in this case as there was in those cases, and I therefore reject that submission.
[40] The reference in s 136(9) to the fact that an objection “is to be” referred directly to the High Court does not support Mr Judd’s submission that the application for leave must be made within the three month period. His argument is that if the application for leave is made during that period, then it is credible to say that the objection “is to be” referred to the High Court, even if the application for leave has not been dealt with at the end of the three month period. It seems to me that if that is so, then it is equally so when the case is filed in anticipation of an application for leave and the application is made (and heard) subsequently. That is what happened here. Whether the application for leave is filed during the three month period or not, the question of whether the objection “is to be” referred to the High Court cannot be answered until the application for leave has been dealt with.
[41] Mr Ruffin argued that if the objector’s contention that the application for leave needed to be filed with the case stated is accepted, and the application was not made in that period (as is the case here), then the Commissioner had failed to file a valid case within the time specified in s 136(9). Accordingly, the objectors’ application to have their objection allowed should not have been made to the TRA under regulation 6(4) but under s 136(13) to the Court. If that had occurred, the Court would have had available to it the option of remitting the objection to the TRA for hearing and determination which would have obviated the need to apply for an extension of time under regulation 8.
[42] It would undoubtedly have been very convenient if s 136(13) could have been brought into play. If I filled a lacuna by finding that filing an application for leave had to be done by the time the case stated was filed, as Mr Judd suggested, then I could equally fill a lacuna in s 136(13) to bring that section into play where no leave had been sought, in the period within which the case had to be filed. As I have already declined to fill the alleged lacuna identified by the taxpayer, the issue does not arise.
[43] Section 136(13) does not, on its face, apply in this situation, because a case had been filed in the time specified in s 136(9), albeit without an application for leave being filed at the same time. I am not prepared to interpret the reference to “case” in ss 136(9) or (13) as referring to both a case stated and an application for leave to refer the objection to the High Court. Such an interpretation would require reading words into this section which are plainly not there. The sub-sections refer only to the “case”. There are many circumstances, for example where the issues relate only to questions of law, where no leave is required and therefore only the case stated can be intended to be referred to. It is not appropriate to interpret the reference to “case” as having one meaning (only the case stated) in one context (where no leave is required) and another completely different meaning (the case stated plus leave application) in another context (where leave is required).
[44] In conclusion, I find the Commissioner is not required to apply for leave within the three month period for the filing of the case stated; the High Court has jurisdiction to consider an application for leave even if it is filed after the three month period has elapsed. I note this is consistent with the way Baragwanath J has dealt with the matter. The Commissioner’s delay in filing the application for leave has, however, left him in the position where the jurisdiction of the TRA under s 134 has not been over-ridden by s 136. The objector was entitled to apply under regulation 6(4) to the TRA for an order that its objection be allowed.
[45] The Commissioner could have protected himself against this possibility by filing an application to the TRA for extension of time during the three month period. This application, resting on the grounds that he had stated a case to the High Court and had either applied for leave or intended to do so immediately, should have requested an extension of time until the former application for leave had been dealt with by the Court. By choosing not to do this, and by not having the leave application filed and dealt with during the three month period, the Commissioner increased his exposure to a regulation 6(4) application and made it more difficult to obtain an extension of time under regulation 8.
[46] Baragwanath J said in his judgment of 3 February 1998 that this was not a case where the Commissioner had exposed himself to sanction for delay. While I agree that the Commissioner cannot be criticised for delay (because he filed a case stated in the High Court within the statutory time limit), the course of action the Commissioner chose to adopt left him open to an application by the objector under regulation 6(4).
Extension of time: exceptional circumstances
[47] As already stated, regulation 8 gives power to the TRA to extend the time for the Commissioner to file a case stated with the TRA until such time as the Authority thinks fit. The regulation says this power exists whether the application for extension of time is made before or after expiry of the time limit. However, regulation 8(2) then adds:
“Where application is made for an extension of time more than two months after . . . the date for filing the case . . . an order for extension of time shall be made only in exceptional circumstances. (emphasis added)
[48] Because the Commissioner’s application for an extension of time was made well after the expiry of the three month time period for filing a case stated with the TRA, the Commissioner’s application fell within regulation 8(2).
What are exceptional circumstances?
[49] I was referred to a number of cases which dealt with the meaning of the term “exceptional circumstances”. These included:
• Case T45, (1998) NZTC, 8300 in which Barber DCJ accepted that a delay caused by the error of the taxpayer’s overworked accountant which led to the statutory time limit being exceeded by seven months, amounted to “exceptional circumstances”;
• Treasury Technology Holdings Ltd v CIR (1998) 18 NZTC, 13752, in which Paterson J held that exceptional circumstances were unusual, but not necessarily extraordinary, circumstances that provided a taxpayer with a reasonable justification for not commencing a challenge within the required time period.
• Milburn NZ Ltd v CIR (1998) 18 NZTC, 14005, where Gendall J essentially confirmed the position outlined by Paterson J in the Treasury Technology case. Gendall J thought the necessary elements of exceptional circumstances were:
- an event or circumstance that is unusual, out of the ordinary but not necessarily rare;
- which is beyond the control of the applicant; and
- thus provides the applicant with a reasonable justification for breaking the time limit.
[50] I was also referred to two decisions of the Court of Appeal in the employment law field: Wilkins & Field Ltd v Fortune [1998] 2 ERNZ 70, which cited a previous Court of Appeal decision GFW Agri-Products Ltd v Gibson [1995] 2 ERNZ 323. In the latter case, the Court of Appeal said, at 330:
“It is sufficient to comment that the legislature has provided for a time limit. That is a requirement of the law which is to be given effect and which cannot be abrogated by invoking equity and good conscience. Similarly, for the grant of leave an applicant must show exceptional circumstances having a causative effect upon the delay in submitting the grievance.
The legislature has set the burden at the high level by requiring that circumstances be exceptional and that must be given proper application. Further there is no formality or difficulty involved in notifying a grievance to an employer and failure to do so, within 90 days will generally not be ‘occasioned by circumstances which, on a practical approach, have left reasonable time to secure any necessary advice and notify the grievance’.”
[51] The reference to the need for the circumstances to have a “causative effect” on the delay is important. The taxpayer argues this necessarily limits the factors which may be considered to those which arose prior to the statutory deadline, since anything which happened after that cannot logically have caused the failure to meet the deadline.
[52] In Wilkins & Field, one of the reasons the Employment Tribunal agreed to allow an extension of time was that the employer against whom the aggrieved party wished to pursue his grievance had handled the matter for 6 1/2 months after the lapse of the 90 day period as if there were no problem. The Court of Appeal found it was wrong to take that into account because “the circumstances subsequent to the elapse of the 90-day period cannot constitute exceptional circumstances occasioning failure to submit a personal grievance within that period”.
[53] This is a key point in the current context, as Mr Judd argues Wilkins & Field is authority for the proposition that the TRA should, when considering applications under regulation 8, consider only matters that occurred prior to the lapse of the time period for filing. In this case, he argued the TRA wrongly considered matters which arose after the expiration of the time period.
[54] It is noteworthy that s 33(4) of the Employment Contracts Act 1991, which was the provision considered by the Court of Appeal in Wilkins & Field, used the words “is satisfied the delay in submitting the personal grievance was occasioned by exceptional circumstances”. This can be contrasted with the much more general language of regulation 8, which simply says the TRA can extend the time for filing of a case stated and then adds that, beyond a certain time “an order for extension of time shall be made only in exceptional circumstances”. The crucial difference is that there is no reference to the need for the failure to comply with the time limit to be “occasioned by” exceptional circumstances.
[55] Treasury Technology and Milburn were cases decided under s 138D of the Tax Administration Act which uses the term “exceptional circumstances” but which define that term as follows:
“For the purpose of sub-section (1) an “exceptional circumstance” is an event or circumstance beyond the control of a disputant that provides the disputant with a reasonable justification for not commencing a challenge to a disputable decision within the response period . . .”
[56] Again, this language seems more explicitly to require exceptional circumstances be the cause of the failure to meet the deadline. By contrast, regulation 8 appears to provide a wider discretion to allow an extension of time.
[57] I accept Mr Judd’s contention that, as a matter of logic, events which occurred after the statutory deadline has passed cannot be causative of the failure to meet that deadline. Given the comparatively general wording of regulation 8(2), however, I find that it is not necessary to establish a causal link between the circumstances which are alleged to be exceptional and the failure to meet the timeframe established in regulation 8. Having said that, a case in which such a link can be established will be stronger than one where it cannot. Similarly, I do not think it is necessary to establish that the relevant circumstances are beyond the Commissioner’s control. However, where they are, the Commissioner will have a stronger argument that the circumstances are actually “exceptional”.
Regulation 6(4): What are reasonable grounds?
[58] The earlier analysis of “exceptional circumstances” overlaps somewhat with the analysis of the requirement, in regulation 6(4), that the TRA be satisfied there are “reasonable grounds for the failure to file a case” before it can decline to allow objections which a taxpayer has applied for pursuant to regulation 6(4).
[59] Mr Judd argued that the right to make an application under regulation 6(4) is a “vested right” which arises as soon as the Commissioner has failed to file a case with the TRA either within the prescribed period set out in regulation 6(1), or within any extended time period granted under regulation 8. The sequence of events in this case was that the taxpayer filed its application under regulation 6(4) before the Commissioner filed his application under regulation 8 for an extension of time. Mr Judd argued that, in such circumstances, the taxpayer has a vested right to have its application under regulation 6(4) granted because the regulation requires the TRA to make such an order “unless it is satisfied that there are reasonable grounds for the failure to file a case”.
[60] Mr Judd argued that determining the regulation 6(4) application required the TRA to consider whether it was satisfied there were reasonable grounds for the Commissioner’s failure to file a case with the TRA. Consistent with his argument about “exceptional circumstances”, he argued that in this context “reasonable grounds” could only refer to matters which arose prior to the date on which the case stated had to be filed with the TRA. He claimed that, logically, anything which happened after that date could not amount to a reasonable ground for the failure to file the case before that date. I accept this argument and find that the consideration of “reasonable grounds” under regulation 6(4) requires a consideration only of matters which can be said to give grounds for the failure to file within the time specified. This limits the inquiry to matters which occurred prior to the expiry of the time period.
[61] Mr Judd submitted that applications under regulation 8 which are made after the objector has applied under regulation 6(4) must be determined on a different basis to those made before the objector is entitled to make such an application. Where the regulation 8 application occurs before the regulation 6(4) application, it will be appropriate to determine the regulation 8 application and set the new date by which the case stated may be filed. The regulation 6(4) application will be sustainable only if the Commissioner fails to file the case stated within the new extended time period. Conversely, if the taxpayer has already made a regulation 6(4) application, the taxpayer then becomes entitled to have its objection allowed, unless the TRA satisfies itself that there are reasonable grounds for the Commissioner’s failure to file in time.
[62] Mr Judd argued that in those circumstances a regulation 8 application cannot prejudice the right of the taxpayer under regulation 6(4). This becomes even more important if the application under regulation 8 is made outside the prescribed period in regulation 8(2). He argued that in that situation, the TRA is required to determine the regulation 6(4) application first. Of necessity, this requires the TRA to determine whether there are reasonable grounds for the Commissioner’s failure to file in time.
If the TRA determines there are reasonable grounds, it must consider what orders it will make under regulation 6(4)(b). One possibility would be to grant an application by the Commissioner to extend the time for filing under regulation 8 but, in this case, such an order would be conditional on the existence of “exceptional circumstances”.
[63] The regulations themselves do not provide guidance as to the priority in which applications under regulations 6(4) and (8) should be dealt with. However, Mr Judd referred me to Case U3 (1999) 19 NZTC 9012, which was decided under earlier regulations. In that case, the TRA (Judge Willy) found that the regulation 6(4) equivalent took precedence over the regulation 8 equivalent. In the regulations that applied at that time, the extension of time provision did not have the “exceptional circumstances” requirement. This meant the TRA had a broad discretion to extend time, but in circumstances where there was an extant application by the taxpayer to have its objection allowed. The TRA said at paragraph 41:
“It is true that the Authority has power both to extend the time and to further extend it on application by the defaulting party, but I think it important to emphasise that regulation 5(3) as it then stood [the equivalent of regulation 6(4)] imposes on the Authority an obligation to allow an objection in circumstances where there has been a failure to state a case in time, accompanied by power to relieve the party in default only where ‘there are reasonable grounds’ for the failure to file a case.”
[64] The Commissioner’s failure to file a case in that instance was attributed to the fact that he did not believe objection rights existed and it was only after a similar case had been through all the appeal stages to the Privy Council that it became clear this was wrong. There are some similarities with the present case where the Commissioner wrongly considered leave would be granted to pursue this matter in the High Court. In Case U3, the TRA said, at p 9,019:
“In my view the Commissioner was not entitled at the time the objection was lodged by the taxpayer to assume that his view of the law would ultimately prevail . . . In my view it is not expecting too much of the Commissioner in those circumstances to entertain the possibility that he might be wrong, and on that basis respond to the taxpayer’s objection by filing the case stated in the ordinary way, or at the very least, having allowed time to expire, then apply properly for leave to extend the time.”
[65] While the implicit criticism of the Commissioner in that case cannot be made with such force here, as the Commissioner did file a case stated in the High Court, there are at least some similarities. The Commissioner could have protected his position with the TRA by filing an application for an extension of time at the same time as he filed his case stated with the High Court; he chose not to do so.
[66] Reference is made in Case U3 to an earlier decision of the TRA (Judge Bathgate), which dealt with the application of the same provisions. That was Case F124 (1984) 6 NZTC 60,160, where the TRA said, at p 60,169:
“As to what are, or are not, ‘reasonable grounds’ for the respondent’s failure to file a case within the period of six months must be determined in accordance with the whole of the provisions of reg. 5, under which the respondent has a specific period of six months to file the case stated and is given power to apply for an extension of that time. The respondent would be aware that in the event of its failure to file the case within time, or apply for an extension of time, the objection would be made ‘accordingly’, unless there are reasonable grounds for its failure to file within the time required. In my view ‘reasonable grounds’ should explain the failure, and provide reasons for the failure, if such has occurred. Whether or not there are reasonable grounds for any failure is a question of fact dependent upon the circumstances of the particular case. ‘Reasonable’ is a relative term, there are no hard and fast rules as to what are, or are not, ‘reasonable grounds’.”
[67] The regulations under which Case U3 and Case F124 were decided dealt explicitly with the situation in which the Commissioner now finds himself. Regulation 5(1) of the Taxation Review Authority Regulations 1974 had a proviso which said:
“Provided that where an application has been made under s 32(4) of the Land and Income Tax Act 1954 by the objector or by the Commissioner, to the High Court for the leave of the Court to refer the objection directly to the Court, and the Court has refused to grant such leave, the Commissioner shall file a case with the Registrar of the Authority within a period of six months after the date upon which the decision of the Court refusing to grant leave was given.”
[68] Both the 1994 and the 1998 Regulations omitted that provision, which Mr Judd argued supported his clients’ contentions.
[69] For these reasons, I find that, in considering whether there are “reasonable grounds” under regulation 6(4), the TRA should consider only matters which helped cause the Commissioner’s failure to file a case with the TRA in time. As a matter of logic, this limits the TRA to consideration of matters which occurred before the statutory deadline passed. In this case, that includes the fact that the Commissioner filed a case stated in the High Court and effectively chose a path which required the leave of the High Court to proceed.
Interaction of regulation 6(4) and regulation 8
[70] Mr Judd argued the taxpayer was entitled to have its regulation 6(4) application dealt with before the Commissioner’s regulation 8 application. He cited the decision of the Court of Appeal in Fleetwing Farms Ltd v Marlborough District Council [1997] 3 NZLR 257 in support of this contention. That case concerned two applications by different parties for coastal permits for the same area. The order in which the applications were dealt with was crucial to the outcome. The Court found that, since the Environment Court stood in the shoes of the Council, it had to give priority to the party whose application was publicly notified first. The statutory scheme of the Resource Management Act 1991 required this.
[71] I do not find this case very helpful in this context, given the different statutory scheme and the fact that it related to applications by two parties for the same thing, not competing applications. Nevertheless, it does confirm that the statutory scheme is the key to determining priority issues of this nature.
[72] Having considered the statutory context in which regulations 6(4) and (8) appear, I conclude that where the taxpayer has made a regulation 6(4) application, and where the Commissioner subsequently makes a regulation 8 application, the taxpayer is entitled to have its application dealt with first. Using regulation 8 to extend the time period removes the basis for the regulation 6(4) application. It is inappropriate for the TRA to use the subsequent regulation 8 application to render the earlier regulation 6(4) application nugatory.
[73] If the TRA finds that there are reasonable grounds, it should not grant the taxpayer’s application to have the objection allowed. The TRA must then exercise its discretion under regulations 6(4)(b) and 8 with due regard to the fact that, in the circumstances of this case, regulation 8(2) can be exercised only in exceptional circumstances.
Commissioner’s objections to this application for review
Regulation 6(4) - was this an abuse of process?
[74] Counsel for the Commissioner argued that the regulation 6(4) application was an abuse of process. The principal basis of this argument was that such an application should have been made under s 136(13) of the Tax Administration Act, which is essentially the same as regulation 6(4) but applies in relation to the High Court rather than the TRA.
[75] I have already said that I do not believe the taxpayer was able to make an application under s 136(13). This is because s 136(13) applies only where there has been a failure to file a case stated with the High Court. In this case no such failure occurred. Leave to file the case stated had not been filed within the three month period, but the case stated itself had been. Therefore, the grounds for an application under s 136(13) did not exist.
[76] Mr Ruffin also argued that it was an abuse of process to make such an application with the TRA because the High Court was seized of the matter by virtue of the consideration Baragwanath J had given to the Commissioner’s application for leave and the fact that that application remained on foot. Clearly, Baragwanath J was seized of jurisdiction in relation to the application for leave, but this cannot compel the conclusion that he was seized of the whole matter to the extent that the jurisdiction of the TRA was completely excluded.
[77] I recognise that one of the reasons for which Baragwanath J adjourned the applications for leave, rather than declining them, was the possibility that if the TRA declined to hear the case, the High Court could retake control over the matter. I accept this could give an impression that the High Court had jurisdiction over the case stated as well as the application for leave. Notwithstanding this, I find there is no substance in the submission that the taxpayer’s entitlement to make an application under regulation 6(4) was supplanted by the High Court proceedings. Indeed, Baragwanath J, in his judgment of 3 February 1998, expressly rejected a submission that the Court should exercise a supervisory role over the TRA. He said at p.3: “the administration of the business of the Taxation Review Authority is a matter for that Authority alone.” That being the case, I find there is no basis for saying the regulation 6(4) application amounted to a collateral attack on the jurisdiction of the High Court or an attempt to undermine the function of the statute.
[78] Mr Ruffin relied in part on Bradford & Bingley Building Society v Seddon Hancock & Ors [1999] WLR 1482, saying that the application under regulation 6(4) was an abuse of process as defined in that case. As I understand that case, it requires that for the relitigation of an issue in another forum to be an abuse of process there needs to be some other factor such as bad faith, unjust harassment or collateral attack. The taxpayer’s action in this case cannot be so characterised and I note that the taxpayer’s agent made it clear, from the start, that the taxpayer would seek the remedy provided by regulation 6(4) if it became open to the taxpayer.
[79] Accordingly, I find that the application by the taxpayer under regulation 6(4) did not amount to an abuse of process.
Did the TRA proceedings cure earlier procedural irregularities?
[80] Mr Ruffin argued that all of the issues relating to the procedure adopted by the Commissioner, including timing of the filing of the cases stated and the applications for leave to the High Court, were part of the factual matrix placed before the TRA and taken into account in Case U35. This, contends Mr Ruffin, cured any procedural irregularity that may have existed. I do not accept that submission. The TRA had to examine the Commissioner’s actions. There is nothing in the decision of the TRA, however, which can be said to have any effect on what has already been done by the Commissioner, or that is capable of justifying any deficiencies in the Commissioner’s actions. I therefore reject the Commissioner’s argument on this point.
Estoppel
[81] The Commissioner submitted the taxpayer was, by virtue of its earlier conduct, estopped from denying the TRA should hear and determine the cases stated. It was argued this conclusion arises from Baragwanath J’s minute of 13 October 1997, which recorded the taxpayer’s counsel accepting the common sense of the proposition that if the High Court was not to deal with the cases stated they must logically be dealt with by the TRA.
[82] This cannot be sufficient to prevent the taxpayer from seeking to have its objection allowed by the TRA. There is no explicit disavowal of its rights in this regard; indeed, on the contrary, the taxpayer, through its agent Mr Russell, has always made it clear it intended to rely on the Commissioner’s failure to state and file a case with the TRA within the time limit. There has been no reliance by the Commissioner on any actions or representations by the taxpayer, including the statements referred to in Baragwanath J’s minute. It would not be unfair or unjust to allow the taxpayer to rely on the Commissioner’s failure to comply within the time limits and, consequently, to seek to have its objections allowed.
[83] This situation displays nothing that suggests estoppel is relevant. I therefore reject the Commissioner’s submission that the taxpayer is estopped from denying the TRA’s authority to hear and determine the case stated.
Decisions of the TRA
TRA’s decision in Case U35
[84] I now turn to the TRA’s decision in Case U35, and consider the parties’ submissions as to whether any error of law was made by the TRA.
[85] The TRA considered the facts and then proceeded to deal with the regulation 8 application, finding, at paragraph 20, that the essential matter before it was whether there were “exceptional circumstances” in terms of regulation 8(2). It then analysed the meaning of “exceptional circumstances” by reference to the cases I have cited, and certain others. It concluded, at paragraph 36, that, having regard to the totality of the circumstances, there were exceptional circumstances. These circumstances were:
s 136(4) permits the filing of a case stated in the High Court (albeit with leave);
there is a deficiency in the legislation dealing with the relationship between the TRA and the Court;
there was no prejudice to the objectors because the case stated in the High Court gave them notice of the issues;
it was incorrect that the Commissioner had to file under regulation 6 as well as under s 136 because once he filed a case stated in the TRA this effectively frustrated his desire to have the matter heard by the High Court;
the statute clearly does not envisage two cases stated being filed - one with the TRA and one with the High Court;
the Commissioner’s filing of the case stated in the High Court complied with the three month time limit. Therefore, the Commissioner was not in breach of any statutory provision by filing the application for leave more than three months after the points of objection had been recorded;
the Commissioner was justified in assuming he could bring the case to the High Court and that the Court would grant leave, despite the objectors’ tax agent, Mr Russell, having taken a different stance from the outset. Baragwanath J had found that the Commissioner had not acted improperly and exposed himself to sanction for delay;
it would be contrary to public policy to allow the objectors to succeed by default in these circumstances unless the law so required;
the Commissioner’s actions did not indicate any improper purposes or motives, or any abuse of process or of power;
it was only after Baragwanath J’s findings on 13 October 1997 that it became apparent that, if the leave of the High Court was not given, it was necessary to file for an extension of time with the TRA. The taxpayer’s contention that this matter was not beyond the Commissioner’s control was rejected because the Commissioner’s plans and actions were understandable;
the TRA took into account the fact that the Commissioner should have anticipated this problem because of the warnings given by Mr Russell;
it is the justice of the overall situation in relation to the integrity of a system of time limits that is most important when ascertaining whether there are exceptional circumstances to justify an extension of time;
as there were exceptional circumstances in terms of regulation 8, it followed that there were reasonable grounds for the failure to file a case in terms of regulation 6(4). Therefore, the regulation 8 application succeeded and the regulation 6(4) application failed;
for something to be exceptional, it only has to be unusual or non-typical. The Commissioner’s preference for the case to be heard in the High Court, which put it out of time for consideration in the TRA when the High Court did not grant leave, met this requirement. This was not fully in the control of the Commissioner;
the statutory lacuna identified by the TRA needed to be overcome by granting an extension of time to enable the Commissioner to file his cases in the TRA, rather than in the High Court.
Analysing the taxpayer’s criticisms of the TRA decision
[86] In its statement of claim, the taxpayer argues that once it became entitled to apply under regulation 6(4), and did so, the TRA should have determined that application before it could extend time under regulation 8. Thus, it should have first determined whether there were reasonable grounds for the failure to file the case in terms of regulation 6(4). Only if it decided that there were reasonable grounds could it consider what orders to make under regulation 6(4)(b) and whether to exercise its discretion under regulation 8.
[87] For the reasons indicated earlier, I agree with that submission and find the TRA was in error in not considering the “reasonable grounds” test under regulation 6(4) before proceeding to consider the regulation 8 application.
[88] The objector also argued that if the TRA was satisfied there were reasonable grounds, it could still have refused to extend time under regulation 8, because the fact that something constitutes reasonable grounds does not necessarily mean that it also constitutes exceptional circumstances. Again, I accept that submission and find the TRA was in error for not taking such an approach.
[89] The taxpayer next contended that the TRA erred by not confining its consideration of reasonable grounds under regulation 6(4)(a) to facts and circumstances which were in existence or had occurred before the expiry of the statutory time period. As I have already indicated, I accept that in determining the reasonable grounds point, the TRA should have addressed only facts and circumstances which occurred before the statutory time period expired. I note that this would include the fact that the Commissioner had filed the case stated in the High Court. The TRA does concentrate on that event and I do not believe it can be criticised for taking it into account. However, to the extent that the TRA took into account subsequent matters, I find that it was in error.
[90] In his submissions, Mr Judd argued the TRA took into account irrelevant matters, being facts which occurred after time had expired (with which I have already dealt) and the lacuna in the legislation. For the reasons I have already given, I do not accept the imprecision in the legislation between the High Court and the TRA procedure can properly be categorised as a lacuna. The TRA was, therefore, mistaken in its belief that a lacuna existed in the Tax Administration Act.
[91] I therefore find that the TRA made a number of errors of law in Case U35. I will address the relief to which the taxpayer is entitled at the end of this judgment.
TRA decision in Case U41
[92] The taxpayer makes two separate claims in relation to the TRA’s decision in Case U41. The first concerns the refusal of the TRA to state a case for the opinion of the High Court as requested by the taxpayer and the second relates to the decision of the TRA to strike out the taxpayer’s appeal against the TRA’s decision in Case U35.
[93] My decision on the judicial review application of Case U35 effectively makes these issues of academic interest only, but counsel asked me to deal with them, in case there is an appeal against this decision.
[94] While I will deal with the two aspects of the challenge to the TRA’s decision separately, it is helpful to understand the background to the TRA’s decision, particularly the relevant provisions of the Taxation Review Authorities Act 1994. Those provisions are ss 24 and 25, which relate to cases stated and appear in Part III of the Act (entitled “Proceedings before Authorities”), and s 26, which appears in Part IV of the Act (entitled “Appeals”). For convenience, the text for those sections is set out below in full:
“24. Stating case for High Court
(A1) This section applies only to objections commenced under Part 8 of the Tax Administration Act 1994.
(1) Cases stated An Authority may at any time, before or during the hearing or before delivering the Authority’s decision, on the application of either the objector or the Commissioner or of the Authority’s own motion, state a case for the opinion of the High Court on any question of law arising in any proceedings before the Authority.
(2) Notice to Commissioner and objector The Authority shall give notice to the Commissioner and the objector of the Authority’s intention to state a case under this section, specifying the registry of the High Court in which the case is to be filed.
(3) Procedure on case stated Subsections (3), (4), (5), (6), and (7) of section 26 shall apply to a case stated under this section as if the case were an appeal to the High Court on a question of law in which the party on whose application the Authority intends to state the case, or the Commissioner where the Authority intends to state the case of the Authority’s own motion, is the appellant, except that the time for submitting a case to the Authority shall be within 30 days after the date of the giving by the Authority of notice under subsection (2) of this section, or such further time as the Authority may allow.
(4) Removal into Court of Appeal The High Court may order the removal into the Court of Appeal of any case stated for the opinion of the High Court under this section.
(5) Determination by High Court or Court of Appeal The High Court or the Court of Appeal, as the case may be, shall hear and determine the question, and shall remit the case with its opinion to the Authority.
25 Decision Of An Authority
(1) On the determination of an objection or challenge, an Authority acting in its general jurisdiction shall give its decision in writing.
(2) On the request of the objector, the disputant, or the Commissioner made at the hearing or at the time the decision is given, an Authority acting in its general jurisdiction shall state in writing its findings of fact and any reasons in law for the decision.
26 Appeals to the High Court
(1) The determination of an Authority on any objection shall be subject to appeal to the High Court in any case where, not being an objection referred to an Authority under section 138(1) of the Tax Administration Act 1994,-
(a) The amount of tax involved in the appeal to the High Court is $2,000 or more; or
(c) The amount of loss involved in the appeal to the High Court is $4000 or more,
(d) The appeal relates to questions of law only,-
but shall be final and conclusive in all other cases.
(2) In the case of an appeal the appellant shall, within 30 days after the date of the giving by the Authority of the Authority’s decision in writing in relation to the determination appealed from, file with the Authority a notice of appeal specifying the registry of the High Court in which the appellant intends to file the case on appeal, and, in the case of an appeal by an objector, shall give security for the costs of the appeal to such amount and in such form as may be fixed by the Authority.
(3) The appellant shall prepare a case setting forth the facts and the questions of law or fact arising for the determination of the High Court, and shall, within 9 months after the date of the giving by the Authority of the Authority’s decision in writing relating to the determination appealed from, submit the case to the Authority whose determination is appealed from.
(4) An Authority may return to an appellant a case submitted to the Authority under subsection (3) or further submitted under this subsection for such amendment as the Authority shall direct, and the appellant shall further submit the case to the Authority within such time as the Authority shall allow.
(5) Where an Authority accepts a case submitted or further submitted to the Authority under subsection (3) or subsection (4), the Authority shall sign the case and shall deliver the case so signed to the appellant.
(6) The appellant shall, within 14 days after the date of receipt of the case delivered by the Authority under subsection (5), transmit it to the Registrar of the High Court in the registry specified in the notice of appeal, and the Registrar shall then enter the appeal for hearing at the first practicable sitting of the Court.
(7) On the hearing of the appeal the High Court may, if it thinks fit, cause the case stated to be sent back to the Authority for amendment, and subsections (4), (5), and (6) shall, with any necessary modifications, apply as if the case had been submitted to the Authority under subsection (3).
(8) This section applies only to objections commenced under Part 8 of the Tax Administration Act 1994.
The decision not to state a case for the High Court
[95] After the decision of the TRA in Case U35 was released on 4 February 2000, the taxpayer appealed to the High Court. The Commissioner then applied to the TRA to strike out that appeal on the grounds that there is no right of appeal against interlocutory decisions such as Case U35. That application was dated 22 March 2000. On 14 April 2000, the taxpayer applied to the TRA to state a case for the opinion of the High Court on various questions. The statement of claim in this case refers only to three of those questions, all of which relate to the existence or otherwise of a right of appeal and the appropriateness of the TRA hearing an application to strike out an appeal against its own decision. However, Mr Ruffin provided me with a copy of the original application to state a case which refers to nine separate questions. Six clearly relate to matters on which the TRA had already made a determination in its decision in Case U35. Obviously, from the terms of s 24(1), a case may be stated only during or before a hearing, or before delivering the TRA’s decision. It was therefore clearly inappropriate for the TRA to state questions for the High Court on issues which had been determined in Case U35, because the application was made after Case U45 had been decided. Mr Judd acknowledged this was the case.
[96] It is unfortunate that the application to state a case mixed clearly inappropriate matters relating to Case U35 with those relating to live issues on the nature of the taxpayer’s appeal rights against the TRA’s decision. I consider it likely that the TRA’s consideration of the application for case stated was clouded by the inclusion of these inappropriate issues. I will confine my inquiry to the three questions referred to in the taxpayer’s statement of claim.
[97] It is apparent that this application arose from the taxpayer’s concern that the Commissioner was applying to have its appeal struck out and this would leave the taxpayer with no avenue, except judicial review, to challenge the decision in Case U35.
[98] The TRA declined to state a case. It said at paragraph 7:
“The short answer is s 24(1) gives me a discretion at any time until I have given a determination on a case stated, and whether on the application of either party or of my own motion, to seek the opinion of the High Court on any question of law arising in the proceedings. I have not, and do not find it necessary to seek the opinion of the High Court on any questions raised for the objectors in these proceedings.
Applications for rulings have been made by the parties from time to time in these proceedings, and I have provided them with reasons. I feel I have complied with natural justice and have simply not found it necessary to use the discretion, helpfully provided to me by s 24(1). As far as I am concerned there is no question of law which I wish to refer to the High Court for opinion. I note that s 24 is restricted to appeals on a question of law.”
[99] The taxpayer challenges this refusal to state a case, arguing the TRA does not have an unfettered discretion, but rather a discretion which is limited by certain legal principles. Mr Judd cited Padfield v Minister of Agriculture [1968] All ER 694 and Re T (An Adoption) [1996] 1 NZLR 368 in support of that contention. In the former case, Lord Upjohn said that a Minister who had a discretion which was characterised as unfettered must “act lawfully and that is a matter to be determined by looking at the Act, and its scope and object in conferring a discretion on the Minister, rather than by the use of adjectives”. In the latter case, Blanchard J referred to the discretion of a District Court Judge, in relation to adoptions, under s 20(1) of the Adoption Act 1955, and said:
“Powers and discretions must be exercised in a manner consonant with the purpose for which they were conferred under the particular statutory scheme.”
[100] I accept the taxpayer’s submission that the discretion of the Authority to state a case under s 24(1) is not completely unfettered. While I accept the Commissioner’s submission that the term “may” in s 24(1) implies a wide discretion, I note that the statutory provision being considered by Blanchard J in Re T (an Adoption) also used the term “may” and I can see no other distinguishing factors in this case.
[101] The taxpayer argues that three questions in the application to state a case concerned important legal matters, specifically, the existence or non-existence of statutory rights of appeal, whether or not the TRA had jurisdiction to stop an objector from appealing by striking out an appeal, and the propriety of the TRA hearing an application to strike out those appeals. Furthermore, the TRA did not consider the nature of these questions in making its determination (perhaps mistakenly considering all of them had already been dealt with in Case U35); the taxpayer contends it ought to have done so. Failure to do so meant it had not taken into account a relevant consideration.
[102] In his submissions, Mr Judd expanded on this, noting:
it would be preferable for the existence of a right of appeal against a decision of the TRA to be determined by the High Court, rather than by the TRA itself, given that the TRA is the body from which the appeal is being made;
the Commissioner’s application to the TRA to strike out the appeal was unusual;
the TRA’s decision striking out the appeal is not a decision “on any objection” and is therefore not subject to appeal;
the importance of the issue from the point of view of the objector because, if no right of appeal existed, the objector was left only with the possibility of an application for judicial review.
[103] Mr Ruffin argued that the reference to “the Authority’s decision” in s 24 refers to the Authority’s substantive decision that determines the objection of the case stated. As the matters which were the subject of this application for a case stated could not be said to involve the substantive determination of the objector’s objection, they fell outside s 24. I do not accept that submission. Section 24(1) refers to “any question of law arising in any proceedings before the Authority” which provides scope for a case to be stated in the present circumstances.
[104] I find that s 24 gave the TRA a discretion as to whether or not to state a case in relation to the questions affecting appeal rights and the strike out application. That is a broad discretion, but one which must be exercised according to law. I find the Authority failed to consider a relevant matter, namely the nature of the questions relating to appeal rights and the desirability that the extent of appeal rights from decisions of the TRA ought to be determined by the Court rather than the TRA, especially where no precedent exists. I find the TRA ought to have considered whether it was desirable to obtain guidance from the High Court as to whether the TRA ought properly to strike out an appeal against its own decision in circumstances where the nature of appeal rights was uncertain. I also find the TRA was wrong to consider the discretion under s 24 to be entirely subjective, that is, exercisable only if the Authority itself wished to have a ruling from the High Court. It ought to have considered whether it was appropriate, given the nature of the questions, that the High Court rather than the Authority be asked to determine them.
[105] In view of my earlier position on the TRA decision in Case U35 and my findings later in this judgment on the nature of the appeal right available to the taxpayer, my findings in this regard are of no practical significance at present. I therefore make no order quashing the TRA’s decision in this respect or referring the matter back to the TRA.
The decision to strike out the appeal to the High Court
[106] The TRA struck out the taxpayer’s appeal because it found that the right of appeal conferred by s 26 (the text of which is set out above) applied only in relation to final determinations of a taxpayer’s objection. In support of this, it cited an earlier TRA decision (decision 22/99), which also related to Russell template cases.
[107] In the statement of claim, the taxpayer argues that the decision of the TRA in Case U35 was a “determination of an Authority on any objection” and therefore fell within the scope of s 26(1). The decision was otherwise within the scope of that section so, if the taxpayer’s contention is correct, a right of appeal would exist. The statement of claim asks for a declaration to that effect and an order directing the TRA to process the case on appeal as required by s 26. The taxpayer also argues the TRA has no jurisdiction to strike out an appeal against its own decision, and that the competence of the appeal is a matter to be determined by the High Court, not the TRA. I am therefore asked to review the decision to strike out the appeal and declare that the TRA has no jurisdiction to do so.
The nature of the decision in Case U35
[108] Mr Judd argued strongly that the decision of the TRA in Case U35 was a “determination of an Authority on any objection” and therefore subject to appeal under s 26. He particularly emphasised the use of the term “on” in s 26(1), and argued this was broader than a determination “of” any objection, which is the wording used in other provisions, notably s 25(1), which relates to the requirement that the TRA give its decision in writing. The taxpayer argued, therefore, that it is not necessary for a decision to relate to the final substantive determination by the TRA of the merits of an objection before the right of appeal under s 26 arises.
[109] Mr Judd supported this submission with the argument that there was no distinction made in s 26 between an interlocutory decision and a final determination. While s 24 uses the term “the Authority’s decision”, and s 25 uses both “decision” and “determination”, apparently interchangeably, s 26 appears in a different Part of the Taxation Review Authorities Act and refers only to determination “on” any objection.
[110] Mr Ruffin’s response was that the determination referred to in s 26(1) is clearly the determination already referred to in s 25, which is obviously the final determination of the merits of the objection, because it refers to “determination of an objection”. However, that argument seems to me to be hard to sustain, given the choice of words in s 26(1), which refers to a determination on any objection and contrasts with s 25(1), which refers to determination of any objection.
[111] Both Mr Judd and Mr Ruffin referred me to the decision of the Court of Appeal in Association of Dispensing Opticians of NZ Inc. v Opticians Board [2000] 1 NZLR 158. That case was also referred to the TRA, but was dismissed on the grounds that the statutory provisions in issue were quite different from the Taxation Review Authorities Act.
[112] The Association of Dispensing Opticians case dealt with the scope of s 66 of the Judicature Act 1908. That section refers to “appeals from any judgment, decree or order” of the High Court in contrast to s 26, which refers to a “determination of an Authority on any objection”. In that case, the Court of Appeal confirmed the view outlined in Winstone Pulp International Ltd v Attorney General (CA 175/99, 30 August 1999), to the effect that interlocutory rulings fell into at least three categories:
[a] those that determine or affect the rights or liabilities which are in issue, that is the merits;
[b] those that decide the shape of the substantive proceedings;
[c] those ancillary but important rulings on times and procedures.
[113] The Court in the Association of Dispensing Opticians commented at para 36:
“We are inclined to the view that the broad classification of “decision” suggested in Winstone reflecting as it does similar considerations of the scheme and object of the relevant provisions and underlying policy and sound practice may be a helpful starting point. In that regard rulings made either in the course of the hearing of the proceeding (using that term in a broad sense, including for example an adjournment application), or as part of the trial conduct or management process would not ordinarily be susceptible to interlocutory appeal. On the other hand, rulings which have some substantive effect on rights and liabilities in issue would be. Obviously the boundary lines will not be cut and dried, and as seen in Winstone, particular cases may fall into an exceptional category, but that classification may be helpful at least as a matter of general approach.”
[114] Mr Judd argued that, if this methodology were applied by analogy to decisions of the TRA, a right of appeal should be allowed in this case. He argued that the objector’s application for an order that objections be allowed is not merely a step taken in the course of disposing of the objection, but rather is a ruling with independent determinative effect.
[115] Mr Judd also contended the taxpayer’s position was supported by s 27(2) of the New Zealand Bill of Rights Act 1990, which says:
“Every person whose rights, obligations, or interests protected or recognised by law have been affected by a determination of any tribunal or public Authority, has the right to apply in accordance with law, for judicial review of that determination.”
He argued that since the TRA is a public authority and had made a determination refusing to direct the objections be allowed (which affected the rights, obligations and interests of the objectors), therefore, a right to apply for judicial review should be available. He submitted that the appropriate form of judicial review would be an appeal to the High Court, as this is the primary means of judicial review of TRA decisions, mandated by the Tax Review Authorities Act.
[116] Mr Judd referred to the decision of the Court of Appeal in Moonen v Film and Literature Board of Review [2000] 2 NZLR 9. In that case, the Court of Appeal restated the appropriate methodology for interpreting the Bill of Rights.
[117] Mr Judd contended that more than one meaning of s 26(l) was available, and that the meaning contended for by the taxpayers in this case was the one most in harmony with s 27(2) of the Bill of Rights because it provided for judicial review of the determination of the TRA, which was a determination that affected the rights, obligations or interests of the taxpayers.
[118] Of course, the present proceedings demonstrate that a right of “judicial review” has been made available to the taxpayers. That is the right granted under the Judicature Amendment Act 1972. Mr Judd contends that this right is not sufficient to satisfy s 27(2) of the Bill of Rights because judicial review is not a substitute for a right of appeal, and does not allow for a challenge to the merits of the decision in the same way as an appeal does. I do not accept that s 27(2) should be read as requiring a right of appeal and do not, therefore, accept Mr Judd’s argument on this point.
[119] Mr Ruffin also pointed to the Association of Dispensing Opticians case and argued it demonstrated there were some types of decisions which are not subject to rights of appeal and that the decisions in this case were of this type.
[120] Mr Ruffin referred to a number of other cases which he acknowledged were decided in quite different contexts but which he believed were helpful to the analysis because they were analogous with the current situation. He argued they supported the position taken by the TRA in not allowing the appeal.
[121] The first of these was Pratt v A A Sykes Ltd [1938] 2 All ER 371. In that case the Lord Chief Justice, Lord Hewat, commented that where Justices for the Petty Sessional Division formed and expressed the view that they had no jurisdiction to hear complaints brought before them, the proper course was for them to dismiss the case, leaving the parties to apply for judicial review remedies from the High Court. It was not appropriate for the Justices to state a case to have the issue decided.
[122] The next case was Streames v Copping [1985] 2 All ER 122. In that case May LJ said, at page 127:
“I think that the legal position in this field is as follows. Where either party contends that Justices have no jurisdiction to hear and determine an information or complaint, and the Justices uphold that contention, then the remedy available to the party aggrieved is to ask for leave to apply for judicial review seeking a finding from the Divisional Court that the Justices were wrong to decline jurisdiction and an order for mandamus directing them to hear the information or complaint. Where, on such a contention, justices decide that they do have jurisdiction to hear and dispose of the matter, they should not accede to an application there and then by the party against whom they have decided to adjourn any further hearing and state a case on the jurisdiction point. They should in general proceed to hear and determine the matter before them on whatever evidence is adduced and then, if either party is dissatisfied he can apply to the Justices to state a case . . .”
[123] The third case was Loade v DPB [1990] 1 All ER 36 where it was held that the High Court could not entertain an appeal by way of case stated in a criminal case until a final determination had been reached, although such a jurisdiction did exist in civil cases but was exercised rarely.
[124] He also referred me to the District Court decision of Official Assignee of Leishman and Hitchens v Engel [1994] DCR 146. In that case, Judge Frater determined that a District Court Judge has an unfettered discretion in deciding whether or not to grant leave to appeal to the High Court from an interlocutory order. It is notable, however, that the Judge determined that she would grant leave to appeal because the point of law in question related to a novel point and extended beyond the facts of the particular case.
[125] Mr Ruffin distinguished the situation facing the TRA from that which applies where an appeal is made by filing a notice of appeal in the High Court. He acknowledged that in a case where an appeal is commenced by filing a notice of appeal in the High Court, an application could only be made to the High Court to strike out an appeal on jurisdictional grounds. However, in the present case the appeal provision in the Taxation Review Authorities Act required the TRA itself to prepare a case stated and to determine whether it was within its jurisdiction to do so. Therefore, he submitted the TRA had an implied power to strike out the “purported appeal” for which there was no jurisdictional basis. Any dispute as to the validity of this strike-out could be brought before the High Court by way of judicial review proceedings.
[126] Mr Judd argued that the decision to decline the taxpayer’s application that its objection be allowed and the decision to grant an extension of time to the Commissioner both had “a substantive effect on rights and liabilities in issue”, to use the wording of the Association of Dispensing Opticians case. In any event, he argued that because the taxpayer’s regulation 6(4) application and the Commissioner’s regulation 8 application were inextricably linked, the decisions on the respective applications both had substantive effects on the rights and liabilities in issue and therefore there should be a right of appeal against both decisions.
[127] The TRA itself acknowledged that a decision, pursuant to regulation 6(4), that the objections be allowed, would have been a final determination which would have triggered a right of appeal on the part of the Commissioner. However, it argues the decision not to grant the application simply allowed the matter to proceed to the next stage and was not a final determination. Therefore, a decision to grant the application would have triggered a right of appeal but a decision to decline the application does not. I find this inconsistency troubling.
[128] I find that the decisions of the TRA, although interlocutory in nature, come within the first category outlined in the Association of Dispensing Opticians. I therefore conclude that the TRA erred in its interpretation of s 26(1) and should have stated a case as required under s 26 so that the appeal could be determined by this Court. However, as my earlier findings make this conclusion of incidental interest only, I do not make any orders in relation to it.
Relief claimed by the taxpayer
[129] I have found the TRA made errors of law in its decision in Case U35. Accordingly, I now consider what relief is appropriate in the circumstances. I will address this question with reference to the taxpayer’s statement of claim. The taxpayer claims the following relief:
an order reviewing the TRA’s decision in Case U35. I make such an order;
an order declaring that the TRA’s decision in Case U35 is unauthorised or invalid, or an order setting aside the decision. I make an order setting aside the decision and remit the matter to the TRA for reconsideration, taking into account the points outlined previously in this decision;
a declaration first, that the Commissioner must, within the time limit for filing a case with the TRA, apply to the High Court for leave to refer the objection directly to the High Court, and secondly that an application to the High Court for leave which is filed after the expiration of the time limit for filing a case with the TRA is incompetent. For the reasons I have already given, I decline to make such a declaration;
an order directing the TRA to reconsider and determine the taxpayer’s application for an order directing the Commissioner to allow the taxpayer’s objection. I make an order to that effect;
a declaration that the TRA is required to direct the Commissioner to allow the taxpayer’s objection, unless there were reasonable grounds for the Commissioner’s failure to file the cases. Having ordered the TRA to reconsider its decision in the light of my earlier findings, I do not believe such a declaration is required and I decline to make it;
a declaration that the grounds to be taken into account by the TRA must be facts and circumstances existing at or prior to the date on which the time for filing a case expired. I have already said that in considering “reasonable grounds” under regulation 6(4)(a), the grounds to be taken into account must be facts and circumstances existing at or prior to the date on which the time for the filing of the case expired, but I declined to make a similar finding in relation to “exceptional circumstances” under regulation 8 because of the different statutory wording. Again, I do not consider a declaration is necessary as I have ordered the TRA to reconsider its decision in the light of my earlier findings, and I decline to make such a declaration;
a declaration that the TRA is not permitted to take into account, as grounds for the Commissioner’s failure to file a case, facts and circumstances occurring after the time for filing the case has expired. I decline to make such a declaration for the reasons set out in the previous sub-paragraph;
a declaration that there are no facts or circumstances which could constitute reasonable grounds for the failure to file the cases. I am not prepared to make such a declaration, as I believe it is appropriate for the TRA to consider that point in light of my findings. This can be done when the matter is remitted to the TRA and argued again by the parties;
an order remitting the case to the TRA, with a direction that the TRA direct the Commissioner to allow the taxpayers’ objection. While I have already made an order remitting the case to the TRA for reconsideration, I decline to give such a direction to the TRA, as I believe the TRA should reconsider the matter in the light of my findings and come to its own conclusion on those matters.
[130] Counsel for the taxpayer asked that, if I remitted the matter back to the TRA, I direct it be heard by a Judge other than Judge Barber. I do not believe I have jurisdiction to do this, since it is the TRA, not this Court, that determines how its cases are allocated. For the record, I state that even if I did have jurisdiction to make such a direction I would not have considered it was either appropriate or desirable to do so in this case, and would therefore have declined to make the direction.
[131] All of the issues in Case U41 arose out of the TRA’s decision in Case U35. As I have ordered that decision be remitted to the TRA for reconsideration in light of my findings, I find it unnecessary to grant the taxpayer relief for the errors of law identified in Case U41.
Costs
[132] I did not hear from counsel on the issue of costs and therefore reserve the position. If the parties cannot agree, a costs application should be made within 21 days of the date of this judgment.
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