Mawhinney as Trustee of the Forest Trust v Commissioner of Inland Revenue
[2013] NZHC 3564
•23 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-2360 [2013] NZHC 3564
IN THE MATTER OF JUDICATURE AMENDMENT ACT 1972
AND THE GOODS AND SERVICES ACT 1985 AND THE TAX ADMINISTRATION ACT 1994
BETWEEN PETER WILLIAM MAWHINNEY AS TRUSTEE OF THE FOREST TRUST Applicant
ANDTHE COMMISSIOINER OF INLAND REVENUE
First Respondent
REGISTRAR OF THE TAXATION REVIEW AUTHORITY
Second Respondent
Hearing: 7 August 2013
Appearances: Applicant in person
P Courtney and M Evans for First and Second Respondent
Judgment: 23 December 2013
JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on
23 December 2013 at 11.30 a.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Crown Law Office, Wellington
MAWHINNEY AS TRUSTEE OF THE FOREST TRUST v THE COMMISSIOINER OF INLAND REVENUE [2013] NZHC 3564 [23 December 2013]
[1] Mr Peter Mawhinney, as trustee of the Forest Trust (“the Trust”) has commenced an application for review under the Judicature Amendment Act 1972 against decisions made by the Commissioner of Inland Revenue (“the Commissioner”) and the Registrar of the Taxation Review Authority.
[2] The first respondent has filed an appearance and objection to jurisdiction, applying for the proceeding to be dismissed under Rule 5.49(3) of the High Court Rules. In the alternative, the Commissioner seeks an order that all causes of action pleaded against her be struck out, under Rule 15.1 of the Rules.
[3] For the period ended 31 July 2009, the Trust filed GST returns claiming a refund of $67,011.65. Most of that amount was GST paid in respect of the purchase of a property located on Anzac Valley Road, Waitakere, for $600,000.
[4] The Commissioner informed the Trust by letter dated 13 October 2009 that its GST return was to be audited. The Trust was advised that the audit was complete on 26 November 1010. That letter stated that:
…adjustments have been made in accordance with s 89C(eb) Tax Administration Act (“TAA”) on the basis that it is believed the Trust has been involved in fraudulent activity. A Notice of Assessment and/or Statement of Account will be issued shortly.
[5] The Commissioner issued a Notice of Assessment on 20 June 2012, in which she assessed the amount owed to the Trust as nil, the refund being disallowed in accordance with s 89C(eb) of the Tax Administration Act 1984 (the “TA ACT”). The Trust says that it issued a Notice of Proposed Adjustment in August 2012, and that the Commissioner’s notice of response to this, which was dated 1 November 2012, was out of time.
[6] The Trust denies having been involved in fraudulent activity, and advances five causes of action against the Commissioner. The Commissioner objects to the jurisdiction of the Court to hear and determine the application, claiming that the five causes of action pleaded against the Commissioner in the judicial review raise matters that can, and should properly be raised through the statutory disputes and challenge procedures contained in Parts 4A and 8A of the TA ACT. The
Commissioner relies on the Supreme Court’s decision in Tannadyce Investments Ltd v Commissioner of Inland Revenue (Tannadyce).1 Alternatively, the Commissioner says that the case pleaded discloses no reasonably arguable causes of action or is otherwise an abuse of process and should be struck out.
Application under Rule 5.49
[7] Under Rule 5.49(1), a defendant who objects to the Court’s jurisdiction to hear and determine a proceeding may file and serve an appearance stating the objection and the grounds for it.
[8] The nature of the Court’s jurisdiction in such a case was discussed by the Supreme Court in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd.2 That Court held that the Rule expressed an “unqualified right to challenge the
Court’s jurisdiction to hear and to determine a proceeding”.3
[9] Rule 5.49(4)(a) provides that if the Court is satisfied that it has no jurisdiction to hear and determine the proceeding, it must dismiss the proceeding.
[10] I accept that the terms of the Supreme Court’s decision in Tannadyce are such that the Rule is properly able to be invoked in cases where the Commissioner seeks to argue that issues sought to be brought before this Court on an application for review are covered by the proscription in s 109 of the TA Act which prevents litigation of a “disputable decision” under the Act.
[11] For reasons that will emerge I have concluded that the protest to jurisdiction made by the Commissioner is well founded in the present case. For this reason, it is unnecessary to deal with the Commissioner’s alternative application that the
proceeding be struck out.
1 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2
NZLR 153 [Tannadyce].
2 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1
NZLR 804.
3 At [25].
The applicant’s claims
[12] The applicant’s first cause of action alleges that the Commissioner’s adjustment of the GST owing to the Trust was unlawful and not authorised by s 89C(eb) of the TA ACT. Under s 89C(eb), the Commissioner must issue a notice of proposed adjustment before making an assessment, unless the Commissioner has “reasonable grounds to believe that the taxpayer has been involved in fraudulent activity”. The applicant alleges that nothing in the Goods and Services Act 1985 (“the GST Act”) excludes GST from being applied to fraudulent activity. If the input tax exceeds the output tax in any GST periods as a result of fraudulent activity, the excess GST must be refunded under relevant provisions of the GST Act. On this basis, the applicant seeks:
(a) A declaration that s 89C(eb) of the Tax Administration Act 1984 does not empower the Commissioner to assess, adjust or disallow refunds of GST.
(b)A declaration that the Commimssioner acted ultra vires in purporting to assess, adjust or disallow a refund in the return for the period ended
31 July 2009.
(c) An order quashing the decision to assess GST in the period ended 30
July 2009 to nil.
(d) An order requiring the Commissioner to refund GST in the amount of
$67,011.65.
[13] The second cause of action alleges that the decision to adjust the GST was made in breach of natural justice, which the Commissioner was obliged to observe pursuant to ss 6, 27 and 29 of the New Zealand Bill of Rights Act 1990. The Trust claims that the Commissioner “unlawfully omitted [to] undertake naturally just investigations” prior to making that determination. The relief sought includes a declaration, and orders quashing the decision and requiring a refund of the GST (as with the first cause of action).
[14] The third cause of action alleges that the Commissioner’s failure to reassess the corresponding output tax in the GST period ended 30 September 2010, was unreasonable and (as further explained in Mr Mawhinney’s notice of opposition to the present application), amounted to “conscious maladministration”. The relief sought is the same as that sought for the second cause of action, and again relates to the GST for the period ended 31 July 2009.
[15] The fourth cause of action pleads that after the Commissioner issued the notice of assessment for the period ended 31 July 2009, the Trust issued a notice of proposed adjustment on 23 August 2012.4 Mr Mawhinney relies on ss 89G and AB(2) of the TA Act and alleges that the Commissioner failed to comply with the two month response period to the notice of proposed adjustment. It is alleged that in the circumstances, the notice of proposed adjustment was deemed to be accepted under s 89H(2) of the TA Act. The Trust seeks a declaration that the Commissioner is therefore deemed to have accepted the proposed adjustment. The prayer for relief
again seeks an order that the Commissioner refund GST in the amount of $67,011.65 for the period ended 31 July 2009.
[16] The Trust’s fifth cause of action alleges that the Commissioner breached three statutory duties. First, it is said by misinterpreting s 89C(eb) of the TA Act as if it empowered her to amend the assessment of the taxpayer, the Commissioner breached an alleged duty under s 5(1) of the Interpretation Act 1999 to interpret the Inland Revenue Acts “by ascertaining their meaning from their text and in the light of their purpose”.
[17] Secondly, it is claimed that the first respondent breached a statutory duty under s 111 of the TA Act to issue notices of proposed adjustments to the Trust “as soon as conveniently may be after making an assessment”. Thirdly, the Trust claims that the Commissioner had a statutory duty to observe the principles of natural
justice, which she breached as described in the third cause of action.
4 Mr Mawhinney claims there was a typographical error, and although the date of issue of the notice of proposed adjustment was stated to be 23 September 2012, the correct date should be 23
August 2012, as it was date stamped as being received on 1 September 2012.
The objection to jurisdiction
[18] The Commissioner’s objection to jurisdiction is based on the argument that
the statutory disputes and challenge procedures established under, respectively, Parts
4A and 8A of the TA Act preclude judicial review in accordance with the Supreme Court’s decision in Tannadyce.5 In order to explain that argument, it is necessary to briefly address the relevant statutory provisions.
[19] I begin with the definition of a “disputable decision” in s 3. The definition is as follows:
disputable decision means—
(a) An assessment:
(b) A decision of the Commissioner under a tax law, except for a decision—
(i) To decline to issue a binding ruling under Part 5A;
or
(ii) That cannot be the subject of an objection under Part
8; or
(iii) That cannot be challenged under Part 8A; or:
(iv) To issue a Commissioner's notice of proposed adjustment under section 89B, a Commissioner's disclosure notice or statement of position under section 89M, or a challenge notice.
[20] Part 4A of the TA Act6 sets out procedures under which the Commissioner may issue notices of proposed adjustment in respect of tax returns or assessments, and taxpayers may issue a notice of proposed adjustment in response to a notice of assessment. Time limits apply: these are the “response periods” set out in s 89AB.
[21] Part 8A of the Act7 provides a procedure by which taxpayers may challenge an assessment before a “hearing authority”, defined as either the Taxation Review Authority (“TRA”) or the High Court. As the Supreme Court put it in Tannadyce,
Part 8A “takes over if and when the disputes procedures have failed to resolve the
5 Tannadyce, above n 1.
6 Comprising ss 89A to 89P.
7 Comprising ss 138A-138S.
matter and the Commissioner has issued an assessment which the taxpayer wishes to challenge.”8 In order to engage that process, a taxpayer must meet the requirements of s 138B which provides:
138B When disputant entitled to challenge assessment
(1) A disputant is entitled to challenge an assessment by commencing proceedings in a hearing authority if—
(a) the assessment includes an adjustment proposed by the Commissioner which the disputant or their look-through company has rejected within the applicable response period; and
(b) where the assessment is an amended assessment, an adjustment proposed by the Commissioner that is included in the assessment—
(i) imposes a fresh liability (being a liability that was not included in an earlier assessment) in respect of a particular; or
(ii) increases an existing liability (being a liability that was included in an earlier assessment but to a lesser extent) in respect of a particular; and
(c) the disputant files the proceedings, in accordance with the Taxation Review Authority Regulations 1994 (or any regulations made in substitution for those regulations) or the High Court Rules, within the response period following the issue of the relevant notice of assessment.
[22] Section 109 of the Act is important for present purposes. It is headed “Disputable Decisions deemed correct except in proceedings”. Substantively, it provides:
Except in objection proceedings under Part 8 or a challenge under Part 8A,
—
(a) no disputable decision may be disputed in a Court or in any proceedings on any ground whatsoever; and
(b) every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.
[23] Part of Mr Mawhinney’s argument rests on ss 89C(eb) and 138E. Section
89C provides that the Commissioner must issue a notice of proposed adjustment
8 Tanadyce, above n 1, at [50].
before the Commissioner makes an assessment unless the circumstances set out in subss (a)-(m) apply. One of those circumstances, subs (eb), is that “the Commissioner has reasonable grounds to believe that the taxpayer has been involved in fraudulent activity”.
[24] Section 138E sets out cases in which “a right of challenge is not conferred”. These cases include, in subs (1)(e)(iv), a matter which is left to the discretion, judgment, opinion, approval, consent, or determination of the Commissioner by a provision in, amongst other things, s 89C.
[25] This is the statutory scheme that was analysed by the Supreme Court in Tannadyce. In that case, the majority recognised that the Commissioner’s statutory power to make assessments was within the reach of judicial review.9 It also recognised that “judges should be slow to conclude that a statutory provision ousting or limiting access to the Courts was intended to preclude applications to the High Court for judicial review alleging unlawfulness of any kind”.10 The judgment continues:
[57] But in the present case, there is no need to strain to reconcile the terms of s 109 with the general availability of judicial review in the interests of preserving taxpayers’ access to the High Court when taxpayers need it. This is because the challenge procedure has a built-in right for the taxpayer to take the matter to the High Court, if that is thought necessary or desirable. There cannot therefore be any question of s 109 preventing access by taxpayers to the High Court. Giving effect to its terms does not have that consequence. It cannot matter whether the taxpayer seeks relief from the High Court pursuant to an application for judicial review or pursuant to a challenge under Part 8A. As we have seen, the statutory procedures are framed so as to give hearing authorities power to consider a challenge made to an assessment on any ground whatsoever and to cancel, vary or confirm the assessment as may be appropriate.
[26] The last sentence reflects the discussion earlier in the judgment of ss 109, 114 and 138P. Under s 114 an assessment made by the Commissioner is not invalidated by, amongst other things, a failure to comply with a provision of the Act or another Inland Revenue Act. Under s 138P, hearing authorities are given broad powers on
hearing a challenge. The TRA may confirm, cancel or vary an assessment, reduce its
9 The majority comprised Blanchard, Tipping and Gault JJ, whose reasons were given by
Tipping J.
amount, or increase the amount to the extent to which the Commissioner was able to make an assessment of an increased amount at the time the challenged assessment was made. It may also make an assessment which the Commissioner was able to make at the time that she made the assessment. Whether the hearing authority is the TRA or the High Court, the powers exercisable are the same. In their judgment, the
majority referred to these provisions as “broad powers” and noted that:11
They contemplate a right of hearing de novo on the merits with the hearing authority determining the correct tax liability and making assessment accordingly.
[27] The majority did recognise that in some rare cases it might not be practically possible for a taxpayer to challenge an assessment under Part 8A. In those circumstances proceedings for judicial review would not be precluded by s 109.12
[28] The Court also observed:13
[59] We should add, for completeness, that judicial review will also be available when what is in issue is not the legality, correctness or validity of an assessment but some suggested flaw in the statutory process that needs to be addressed outside the statutory regime, because it is not provided for within it. An example might be the case of a well-founded concern that a particular Taxation Review Authority should, for whatever reason, be restrained from considering a challenge; for example because of alleged bias on the part of the Authority. In such a case it would not be the disputable decision that was being disputed in a court but rather the legality of the process by which the challenge to that decision is to be determined under Part 8A. This is a different matter from a challenge to the legality of the process which led up to the making of the disputable decision. That process and any challenge to it directly puts in issue the disputable decision. Hence the challenge to that decision or its antecedents must follow the statutory procedure.
[29] The judgment summarised the position as:14
[61] In summary therefore we would hold that disputable decisions (which include assessments) may not be challenged by way of judicial review unless the taxpayer cannot practically invoke the relevant statutory procedure. Cases of that kind are likely to be extremely rare. We will examine whether the present is one of those rare cases a little later in these reasons.
11 At [25].
12 At [58].
[30] It is also worth noting what the majority said later in the judgment, responding to the separate judgment of Elias CJ and McGrath J. The majority described the objection and challenge proceedings under the Act, including the ability to elect to have the matter dealt with by the High Court, as giving the taxpayer:15
…exactly the same forum, and indeed broader rights and remedies than would be available on judicial review; but with the crucial advantage that all matters at issue can be dealt with at the same time. Requiring the use of the statutory procedures removes the opportunity which the availability of judicial review would present, and has presented, for gaming the system.
[31] Ms Courtney also drew attention to the Court’s observation that:16
..the best construction of s 109 in its particular statutory context is that it precludes judicial review, save where the statutory procedures could never be invoked.
[32] Further elaboration of the law is not necessary to dispose of the issues that arise on the present application.
This case
[33] I have already briefly addressed the five causes of action pleaded against the Commissioner in the statement of claim. Mr Mawhinney has further explained his argument in the notice of opposition that he filed in response to the Commissioner’s application, and in his submissions at the hearing.
[34] In broad terms, the Commissioner contends that Mr Mawhinney has not established and cannot establish that the causes of action pleaded are matters in respect of which the statutory disputes and challenge procedures could never be invoked. Ms Courtney notes that the GST period ended 31 July 2009 is currently in the statutory dispute process. Consequently, Mr Mawhinney has the ability to raise any issues concerning the correctness or legality of the assessments, and to file challenge proceedings in due course, if appropriate.
[35] Mr Mawhinney argues that the Commissioner unlawfully purported to rely on s 89C(eb) of the TA Act to assess GST for the period ended 30 July 2009 to nil. He contends that issues in respect of s 89C(eb) are expressly excluded from challenge under Part 8A of the TA Act, by s 138E(1)(e) of the Act and that the Commissioner’s stance on that issue is inconsistent with a position previously adopted by her. He contends that “conscious maladministration and illegitimate process” can be subject to judicial review on the basis of the Court of Appeal’s decision in Commissioner of
Inland Revenue v Ti Toki Cabarets (1989) Ltd.17 He submits that none of these
matters could be dealt with through the statutory disputes and challenge procedures.
[36] I do not accept Mr Mawhinney’s argument. It is clear that the Commissioner18 considered that there were reasonable grounds to believe the applicant had been involved in fraudulent activity. That meant that s 89C(eb) was available as a basis upon which a notice of proposed adjustment could be issued. Mr Mawhinney seeks to challenge whether there were such reasonable grounds. However, whether or not they existed, the issue of the proper assessment of the GST for the period ended 31 July 2009 is plainly now a matter which is the subject of a dispute able to be resolved in the statutory disputes and challenge procedures under
the Act. On 3 September 2012 the Trustees served a notice of proposed adjustment on the Commissioner disputing the reassessment of the GST period ended 31 July
2009. In addition, on 4 September 2012 the Commissioner was served with a notice of claim dated “August 2012” which the trustees of the Trust had sought to file in the TRA challenging the reassessment of the GST period ended 31 July 2009.
[37] As has already been noted, by this proceeding, Mr Mawhinney seeks to quash the decision to disallow or reassess the GST to nil in the July 2009 GST period, as well as a mandatory order that the Commissioner refund the sum of $67,011.65. The appropriate amount of the GST is clearly a matter that can be resolved in accordance with the statutory procedures.
[38] Mr Mawhinney apparently seeks to argue the fraudulent activity issue as an independent point, as part of an allegation of conscious maladministration.
However, there is no pleading in the statement of claim based on that assertion. Rather, it is a matter raised only in the notice of opposition. If it remains a valid argument affecting the GST issue (and there must be real doubt about that given the terms of the Supreme Court’s decision in Tannadyce), it is able to be raised in the statutory process. Anything of relevance to the correct assessment of GST for the relevant period can be brought into account in that process, and the hearing authority can make the appropriate decision on the merits.
[39] As has been seen, the second cause of action alleges breach of natural justice. Mr Mahinney notes that a challenge to the determination made by the Commissioner under s 89C(eb) of the TA Act is expressly excluded by s 138E(1)(e) of the Act. Further, because the Commissioner failed to issue a notice of response within the correct statutory timeframe, the Trust claims there was a deemed acceptance of the notice of proposed adjustments under s 89H(2) of the Act. There is a factual dispute about this, as the Commissioner considers that her notice of response was provided in time. However, there is no reason why that disputed issue of fact could not be determined in the statutory disputes and challenge procedures.
[40] Further, any relevant breach of natural justice can also be resolved or ameliorated in that process. Thus, in Dandelion Investments Ltd v Commissioner of Inland Revenue,19 the Court of Appeal discussed the curative effect of a de novo hearing such as that provided for by the TA Act.20 It rejected an argument that the hearing that had been conducted by the TRA was confined by the terms of the
objection and that the restricted scope of the TRA’s jurisdiction precluded it from curing the effects of improper conduct in the process adopted by the Commissioner. There is no justification for taking a different approach here, and as noted earlier, the decision in Tannadyce underlines the fact that the statutory procedures involve the potential exercise of the same powers that are available to the High Court on an
application for judicial review, and indeed confer broader rights and remedies.21
19 Dandelion Investments Ltd v Commissioner of Inland Revenue [2003] 1 NZLR 600.
20 At [50]-[64].
[41] The issue raised by the third cause of action is whether the Commissioner’s
failure to reassess the corresponding output tax in the GST period ended 30
September 2010 was unreasonable or amounted to conscious maladministration.
[42] The Commissioner has now issued a notice of proposed adjustment, including the period ended 30 September 2010. The applicant is able to have the issues considered and determined in the statutory disputes and challenge process.
[43] The fourth cause of action is based on the Trust’s notice of proposed adjustment, dated 23 August 2012. Mr Mawhinney relies on ss 89G and 89AB(2) which, together, mean that the statutory “response period” by which the Commissioner was required to respond was two months. As has been seen, Mr Mawhinney claims that the Commissioner’s response was out of time, a factual issue which the Commissioner disputes. However, in order to bring this argument directly to this Court on an application for review, Mr Mawhinney needs to establish that the issue cannot be raised in the statutory disputes challenge process. Ms Courtney points out that s 89H(2) of the TA Act which deals with deemed acceptance, is not one of the provisions excluded from the right of challenge by s 138E.
[44] The fifth cause of action alleges that the Commissioner breached three statutory duties. The alleged breaches of statutory duty all relate to matters which arise in the earlier causes of action. I am satisfied that the contentions could all be raised in the statutory disputes and challenge process.
[45] In the case of each cause of action the relief sought includes orders quashing the decision made by the Commissioner in relation to the GST for the period ended
31 July 2009, and an order that the Commissioner refund the amount of $67,011.65. While Mr Mawhinney argues different bases on which the Trust is said to be entitled to this relief, the end point in each case involves consideration of the correct GST position in relation to that period. That is an issue plainly within the statutory disputes and challenge procedures in the Act.
[46] It follows that s 109 applies, and means that the pleaded causes of action against the Commissioner cannot be advanced in this Court on an application for review.
Result
[47] The conclusions I have expressed mean that the Court has no jurisdiction to determine the pleaded causes of action against the Commissioner and the application for review, insofar as it relates to the Commissioner, is dismissed.
[48] I understand that Mr Mawhinney is an undischarged bankrupt and therefore infer no issue as to costs arises. If that understanding is incorrect and the Commissioner seeks costs, application can be made within 20 working days, and Mr Mawhinney may reply within 20 working days.
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