Mawhinney v Commissioner of Inland Revenue

[2014] NZHC 2070

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-2360 [2014] NZHC 2070

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

AND

THE COMMISSIONER OF INLAND REVENUE

First Respondent

REGISTRAR OF THE TAXATION REVIEW AUTHORITY

Second Respondent

Hearing:	18 July 2014
Appearances:	Applicant in person P Courtney and S J D Chapman for First and Second Respondent
Judgment:	29 August 2014

JUDGMENT (No.2) OF COOPER J

This judgment was delivered by Justice Cooper on

29 August 2014 at 2.30 p.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 COMMISSIONER OF INLAND REVENUE [2014] NZHC 2070 [29 August 2014]

Introduction

[1]      This proceeding is an application for review under the Judicature Amendment

Act 1972, filed by Mr Peter Mawhinney as trustee of the Forest Trust (the Trust).

[2]      When it was filed, the proceeding sought to review decisions made by both the Commissioner of Inland Revenue (the Commissioner) and the Registrar of the Taxation Review Authority (the Registrar).

[3]      The Commissioner filed an appearance and objection to jurisdiction, claiming that the causes of action against her should be dismissed under r 5.49(3) of the High Court Rules.  That application was made on the basis that, in accordance with s 109 of the Tax Administration Act 1994 (TA Act) and the Supreme Court’s decision in

Tannadyce Investments Ltd v Commissioner of Inland Revenue,1 the decisions of the

Commissioner were not able to be disputed except in objection proceedings under the TA Act.   In my judgment of 23 December 2013 I upheld the Commissioner’s objection to jurisdiction and dismissed the causes of action pleaded  against the Commissioner.2

[4]      There is an outstanding issue in respect of the Commissioner’s costs on that

application which will be considered at the end of this judgment.

[5]      This  judgment  deals  also  with  the  remaining  cause  of  action  in  the application for review, which was pleaded against the Registrar.   Mr Mawhinney alleges that the Registrar acted unreasonably by refusing a waiver of a required filing fee  under  reg 10A  of  the  Taxation  Review  Authorities  Regulations  1998  (the Regulations).

[6]      The Registrar filed an appearance abiding the decision of the Court.  Having provided a record of proceeding relating to the decision subject to review, the Registrar has taken no further steps.  However, for the assistance of the Court and to

enable  the  cause  of  action  against  the  Registrar  to  be  determined  after  proper

1      Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2

NZLR 153.

2      Mawhinney v Commissioner of Inland Revenue [2013] NZHC 3564, (2013) 26 NZTC 21-079.

argument, the Commissioner has filed a statement of defence and presented submissions in support of the Registrar’s decision.

The claim

[7]      Mr Mawhinney seeks judicial review of decisions of the Registrar refusing to waive payment of filing fees on a notice of claim, and an amended claim lodged in the Taxation Review Authority (TRA).  The disputant taxpayers in the claim are the Trustees of the Forest Trust.  At the time of the first fee waiver application on 26

August 2012, both Peter William Mawhinney and Forest Trustee Ltd were held out as being trustees of the Forest Trust:  the claim was purportedly made on behalf of both.  At the time of the second fee waiver application, on 14 February 2013, only Mr Mawhinney was referred to, again in his capacity as trustee of the Forest Trust. Mr Mawhinney advised the Court that Forest Trustee Ltd resigned as trustee prior to the amended claim being filed.  Mr Mawhinney signed both fee waiver applications.

[8]      When the fee waiver applications were made, Mr Mawhinney was bankrupt. The financial information that he provided in support of the two applications to waive the filing fee related to his personal financial position.  Information about the position of the Trust was not furnished.

[9]      Mr Mawhinney’s letter dated 26 August 2012 read as follows:

Please find attached a notice of claim for filing.

I hereby request a waiver of the filing fee for the notice of claim attached, under clause 10A Taxation Review Authority Regulations 1998.

The ground for the request is that, as disputant, I am wholly dependant for the payment of my living expenses on a benefit of a kind specified in s 3(1) of the Social Security Act 1964 referred to in clause 10A(3)(b) 10A Taxation Review Authority Regulations 1998, being unemployment benefit.

Attached are reproductions of documents from Work and Income.

[10]     On 29 October 2012, a case manager employed in the Tribunals unit of the

Ministry of Justice wrote to Mr Mawhinney in the following terms:

Dear Mr Mawhinney

Peter William Mawhinney AND Forest Trustee Limited v Commissioner of

Inland Revenue

On 4 September 2012 the registry received an application for a waiver of the filing fee in respect of the above proceedings.

The Taxation Review Authority Registrar has considered this application and it has not been approved.  The filing fee still stands.  The application was declined on the basis that the Registrar was not satisfied that all disputants met  the  criteria  set  out  in  s 10A(2)  of  the  Taxation  Review  Authority Regulations 1998.

No step will be taken in the above proceeding until such a time as the filing fee of $408.89 has been paid.

If you have any further queries, please do not hesitate to contact me.

[11]     On 14 February 2013, Mr Mawhinney wrote again, attaching an amended notice of claim.  His letter read as follows:

REQUEST FOR WAIVER OF FILING FEE

Please find attached an amended notice of claim for filing in TRA017/12.

I again request a waiver of the filing fee for the notice of claim attached, under clause 10A Taxation Review Authority Regulations 1998.

The ground for the request is that, as disputant, I am wholly dependant for the payment of my living expenses on a benefit of a kind specified in s 3(1) of the Social Security Act 1964 referred to in clause 10A(3)(b) 10A Taxation Review Authority Regulations 1998, being unemployment benefit.

Attached are reproductions of documents from Work and Income.

The original statement of claim was made by a limited liability company as well.  Where a previous request for a waiver was declined, it may have been for  that  reason  (notwithstanding  that  the  company  did  not  apply  for  a waiver). The company is no longer a trustee, and is not party to the amended statement of claim.

[12]     The case manager responded on 26 February 2013.   The letter was in the following terms:

Peter William Mawhinney (as Trustee of the Forest Trust) v Commissioner of

Inland Revenue

On 22 February 2013 the registry received an application for a waiver of the filing fee in respect of the above proceedings.

The Taxation Review Authority Registrar has considered this application and it has not been approved.  The filing fee still stands.  The application was declined on the basis that you have filed as Trustee of the Forest Trust but the Registrar has not been satisfied that the Trust meets the criteria set out in s 10A of the Taxation Review Authority Regulations 1998.   Further, the Regulation does not appear to intend for anyone other than an individual to be permitted a waiver of the fee.

Please pay the $408.89 filing fee within 10 working days, by 12 March

2013.  No step may be taken in the above proceeding until such a time as the filing fee of has been paid [sic].

If you have any further queries, please do not hesitate to contact me.

The relevant regulation

[13]     Regulation 10A of the Taxation Review Authorities Regulations 1998 is in the following terms:

10A      Power to waive filing fees

(1)      The disputant may apply to the Registrar for a waiver of the filing fee payable under regulation 10.

(2)      The Registrar may waive the filing fee payable by the disputant if satisfied,—

(a)      on the basis of one of the criteria specified in subclause (3), that the disputant is unable to pay the fee; or

(b)      that the proceeding,—

(i)        on  the  basis  of  one  of  the  criteria  specified  in subclause (4), concerns a matter of genuine public interest; and

(ii)      is unlikely to be commenced or continued unless the fee is waived.

(3)      For the purposes of these regulations, a disputant is unable to pay the filing fee sought to be waived if—

(a)      the disputant has been granted legal aid in respect of the matter for which the fee is payable; or

(b)      the disputant has not been granted legal aid in respect of the matter for which the fee is payable and the disputant—

(i)        is dependent for the payment of his or her living expenses on a benefit of a kind specified in any of paragraphs (a) to (e), or (j) of the definition of “income-tested benefit” in section 3(1) of the Social Security Act 1964; or

(ii)      is wholly dependent for the payment of his or her living expenses on New Zealand superannuation under the New Zealand Superannuation and Retirement Income Act 2001 or a veteran's pension under the War Pensions Act 1954; or

(iii)      would otherwise suffer undue financial hardship if he or she paid the fee.

(4)      For the purposes of these regulations, a proceeding that concerns a matter of genuine public interest is—

(a)       a proceeding that has been or is intended to be commenced to determine a question of law that is of significant interest to the public or to a substantial section of the public; or

(b)      a proceeding that—

(i)        raises issues of significant interest to the public or to a substantial section of the public; and

(ii)      has been or is intended to be commenced by an organisation that, by its governing enactment, constitution, or rules, is expressly or by necessary implication required to promote matters in the public interest.

(5)       [Omitted]

Applicant’s case

[14]     The statement of claim alleges that the Registrar acted unreasonably.  This claim is based on contentions that:

The disputant taxpayer is dependent for the payment of living expenses on an income-tested benefit as defined in s 3(1) of the Social Security Act 1964, being unemployment benefit, and the criteria in both regulation 10A(2)(b)(ii) and regulation 10A(3)(b)(i) TRAR are met.

Although the grant of a waiver is discretionary to the registrar, the existence of the Regulations for waiver indicate a policy that waiver can be granted, and that the policy encourages such a waiver when the criteria are met.  The registrar acted unreasonably by refusing a waiver when the conditions for the waiver had been met.

[15]     The statement of claim alleges that it is unjust that the “taxpayer” is required to outlay money which is unrecoverable in order that unlawful acts and omissions by the Commissioner be remedied.

Discussion

[16]     It may be noted that, by the terms of the statement of claim, the “taxpayer” is alleged to be the “trustees in the Forest Trust”.  Mr Mawhinney submits that he is the “disputant” in the claim, as the trustee of the Forest Trust;  and that the Trust itself is not the disputant.  In this respect he calls in aid the definition of “disputant” in reg 2 of the Taxation Review Authorities Regulations which reads as follows:

disputant means a person—

(a)       Who   may   issue   a   notice   of   proposed   adjustment   to   the

Commissioner; or

(b)      To whom the Commissioner issues a notice of proposed adjustment or an assessment; or

(c)       Who may challenge a disputable decision—

under a tax law:

[17]     He also refers to definitions in s 2(1) of the Goods and Services Tax Act 1985 of “person” and “unincorporated body”.   The former includes an “unincorporated body of persons”. An “unincorporated body” includes “the trustees of a trust”.

[18]     Mr Mawhinney also purports to rely on the definition of “taxpayer” in s 2 of

TA Act. That definition reads:

taxpayer means a person who—

(a)       is liable to perform, or to comply with, a tax obligation;  or

(b)      may take a tax position,—

whether as principal, or as an agent or employee or officer of another person, or otherwise

[19]     Mr Mawhinney claims that because a taxpayer is a person, and a trust is not a

person (or any other type of legal entity) a trust cannot be a “taxpayer” as defined.

[20]     However, as Ms Courtney pointed out s 57(2) of the Goods and Services Tax Act provides that, where an unincorporated body carries on any tax activity and is registered pursuant to the Act the members of the body shall not themselves be registered or liable to be registered under the Act in relation to the carrying out of the

taxable activity.3   Any supply of goods and services made in the course of carrying on that taxable activity are deemed to be supplied by that body, and deemed not to be made by any member of that body.4     Any supply of goods and services to any member of that body acting in the capacity as a member of that body and in the course of carrying on this taxable activity is deemed to be supplied to that body, and shall be deemed not to be supplied to that member.5  Where the “body” is the trustees of a trust, registration under the Act is in the name of the trust.6

[21]     The claim lodged in the TRA was in relation to a GST dispute.  While it is correct that the Trust can only act through trustees it is clear that when the trustees act on the Trust’s behalf they are doing so in their capacity as trustees, and not as individuals on their own behalf.  For the purposes of the definition of “disputant” in reg 2 of the Taxation Review Authorities Regulations, the trustee makes the claim on the Trust’s behalf, and what is in issue is the taxation liability of the Trust.  While it is true that a trustee would have to attend physically to paying the filing fee, he or she would be doing so acting as the trustee and in order to dispute the Trust’s liability for GST.   Under the relevant provisions the trustees of the Trust are the disputant taxpayer, as alleged in the statement of claim;  but it is their liability on behalf of the Trust which is in issue.

[22]     Mr  Mawhinney  referred  to  a  passage  in  the  case  manager’s  letter  of

26 February 2013 observing, in relation to reg 10A that it:

Does not appear to intend for anyone other than an individual to be permitted a waiver of the fee.

[23]     Mr  Mawhinney  submitted  that  that  observation  was  correct  and  that  in relation to a Trust, it is the “trustee disputant that can be granted the waiver, not the Trust”.  He bolstered this submission by claiming that it is the trustee against whom penalties are charged or punishments meted out if the tax obligations of the Trust are not complied with.  He contended that the fact that he was a trustee acting as such

was irrelevant for the purposes of reg 10A, arguing that as the trustee he would be

3      Goods and Services Tax Act 1985, s 57(2)(a).

4      Section 57(2)(b).

5      Section 57(2)(c).

6      Section 57(2)(d).

personally liable in respect of any failure on the part of the Trust to meet its taxation obligations.  While he might be able to have recourse to property beneficially owned by the Trust in order to meet its obligations, he contended that would not be relevant to the tests in regs 10A(3)(1) and (2).

[24]     His submission overlooked the fact that in lodging the claim and amended claim with the TRA, Mr Mawhinney was acting as the trustee of the Trust.  Far from being an irrelevant consideration, I consider it is determinative. Whether or not there should be a fee waiver is dependent upon the position of the Trust.  It is not to the point for Mr Mawhinney to rely on his own personal circumstances in that respect: what matters is whether or not Mr Mawhinney as the trustee of the Trust could meet the filing fee.  And that is a question which depends upon the financial position of the Trust, a matter that was not addressed in the material provided to the Registrar.

[25]     With reference to the Case Manager’s letter of 26 February 2013, I do not accept it is correct that reg 10A only allows for an “individual” to be permitted a waiver of the fee.   The wording of  reg 10A(3)(b)(i) and (ii) seems confined to individuals, that may not be the case in respect of reg 10A(3)(b)(iii).  However, on the view I take, in order to qualify under that provision, financial hardship would have to have been demonstrated by reference to the assets of the Trust. Alternatively, a waiver might have been sought under reg 10A(2)(b), although I doubt the facts would have justified a waiver on that basis.

[26]     However, Mr Mawhinney merely sought the waiver on the basis of his own personal position as the recipient of a benefit under reg 10A(3)(b)(i).  The Registrar was entitled to deal with the application on that basis and in my view, the application was properly refused.

Costs

[27]     As noted at the outset, there is an outstanding issue in respect of the costs of

the Commissioner’s costs on the part of the proceeding disposed of in my judgment

of 23 December 2013.7

7      Mawhinney, above n 2.

[28]     The  Commissioner  seeks  costs  in  the  sum  of  $12,785.96,  being  costs calculated on a 2B basis, together with disbursements as specified in a schedule that was attached to a memorandum filed on 7 February 2014.  Mr Mawhinney initially sought that the costs issue should not be dealt with on the basis that my judgment had been appealed to the Court of Appeal.   He submits that if the appeal were successful, that would reverse any liability for costs.  I do not consider the existence of the appeal as a basis upon which costs should not be fixed.  At the hearing on

18 June Mr Mawhinney accepted that he could not sensibly argue that costs should not follow the event.   He did argue that the outcome of the proceeding was not “obvious”, and that the Court had found there were issues needing to be resolved in another forum.

[29]     With respect, that overstates the effect of my judgment.   The simple issue decided against Mr Mawhinney was that the Court did not have jurisdiction to entertain his proceeding, for the reasons set out in the judgment.   There was no holding that there were “issues needing to be resolved”.  The position was simply that if the applicant wished to pursue those issues he would need to do so in the appropriate forum.

[30]     Mr   Mawhinney   has   not   suggested   that   there   is   any   error   in   the

Commissioner’s costs calculation.  It appears accurate to me.

[31]     I, therefore, order that Mr Mawhinney pay the Commissioner’s costs and

disbursements in the total sum of $12,785.96.

[32]     If there is any issue as to costs in respect of the substantive matter dealt with in this judgment, then the parties should make a genuine effort to agree.  If that is not possible, I will again receive memoranda on the matter from the Registrar within ten working days and from Mr Mawhinney within a further five working days of receipt of the Registrar’s submissions.

Result

[33]     The cause of action pleaded against the second respondent is dismissed.

[34]     The applicant must pay costs in the sum of $12,785.96 in respect of the causes of action pleaded against the Commissioner which were dismissed in my judgment of 23 December 2013.8

[35] The issue of costs in respect of the cause of action against the Registrar has been addressed at [31] above.

8      Mawhinney, above n 2.