FAQIRYAR v COMMISSIONER OF INLAND REVENUE [2022] NZHC 552

FAQIRYAR v COMMISSIONER OF INLAND REVENUE [2022] NZHC 552 [24 March 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2020-404-170[2022] NZHC 552UNDER Part VIIIA of the Tax Administration Act1994BETWEEN AHMAD JAMIL FAQIRYARPlaintiffAND COMMISSIONER OF INLANDREVENUEDefendantOn the papersCounsel: G Clews for the plaintiffA B Goosen and G Du Preez for the defendantJudgment: 24 March 2022JUDGMENT OF CAMPBELL JThis judgment was delivered by me on 24 March 2022 at 10:00 am pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy Registrar[1] The plaintiff challenges tax assessments made by the defendant, theCommissioner of Inland Revenue (the Commissioner), of the plaintiff's income taxin each of the 2009–2013 income years.[2] Under s 138B of the Tax Administration Act 1994 (the Act), the plaintiff wasentitled to bring his challenge either in the Taxation Review Authority (the TRA) orthe High Court. The plaintiff chose the latter course, starting this proceeding on 7February 2020.[3] The plaintiff now wants to change course. He requests that the Court exerciseits own motion jurisdiction, under s 138N of the Act, to transfer the challenge to theTRA. In support of his request, the plaintiff relies on a change in his personal financialcircumstances caused by the COVID-19 pandemic.Background[4] The issue in the plaintiff's tax challenge is whether certain deposits fromoverseas into the plaintiff's bank accounts totalling $953,706 are gross income of theplaintiff. The Commissioner says the disputed deposits are income from exportingsecond-hand car parts. The plaintiff says the disputed deposits are inheritancepayments and a deposit belonging to a third party. The core income tax in respect ofthe disputed deposits is $325,081.75.[5] In May 2020, soon after the plaintiff started his proceeding, the parties filed ajoint memorandum requesting a six-day hearing. The plaintiff said he anticipatedcalling eight witnesses. Three of his witnesses reside in New Zealand. They allrequire translation services (from Farsi or Pashto). The other five witnesses resideoverseas (in either Dubai or Afghanistan) and also require translation services (again,from Farsi or Pashto). The parties agree the overseas witnesses should give evidenceby video link.[6] A six-day hearing was allocated, beginning 19 July 2021.[7] In May 2021, counsel for the plaintiff filed a memorandum explaining that,among other things, the plaintiff's export business had ceased to be viable as a resultof ongoing disruptions to maritime trade caused by the COVID-19 pandemic. It wastherefore difficult for the plaintiff to fund litigation. Counsel advised that, because ofthese matters, serious settlement discussions were underway.[8] In June 2021, a joint memorandum was filed advising that an agreement inprinciple had been reached. Both parties requested that the 19 July 2021 hearing bevacated. That hearing was vacated.[9] A concluded settlement was not reached. In part, that was because of theapparent inability to also resolve a separate restraint and forfeiture proceeding broughtagainst the plaintiff by the Commissioner of Police under the Criminal Proceeds(Recovery) Act 2009.[10] On 10 December 2021, counsel for the plaintiff filed a memorandum statingthat an overall settlement had not been reached and that the plaintiff's tax challengewould therefore have to proceed. Counsel also advised that the plaintiff wished toapply for the tax challenge to be transferred from the High Court to the TRA. Theplaintiff proposed a timetable for that application.[11] The Commissioner responded that there was no jurisdictional basis for such anapplication. The Commissioner referred to s 138N(1) of the Act, which provides:(a) If a disputant commences a challenge in the High Court,—(a) the Commissioner may apply to the High Court to have thechallenge transferred to a Taxation Review Authority; or(b) the High Court may, of its own motion, transfer the challengeto Taxation Review Authority.[12] The Commissioner's position was that, under s 138N(1), only theCommissioner could apply to transfer a challenge from the High Court to the TRA.The High Court could also do so of its "own motion", but a plaintiff had no right tomake an application.[13] On 15 December 2021, Gordon J directed that the issue whether there wasjurisdiction for the plaintiff to apply for a transfer should be resolved first, beforepotentially unnecessary affidavit evidence was filed. Her Honour allocated a hearingon 10 February 2022 and made directions for submissions to be filed and served.[14] I was scheduled to hear the argument on the jurisdictional issue. I read thesubmissions in advance of the hearing. There had been a change of position by theplaintiff. Both the plaintiff and the Commissioner agreed that:(a) The plaintiff had no right to formally apply for a transfer of the taxchallenge to the TRA.(b) The plaintiff could request the Court to consider exercising its ownmotion jurisdiction to transfer the tax challenge to the TRA and seek topersuade the Court to do so.[15] It was clear that the plaintiff was requesting the Court to consider exercisingits own motion jurisdiction to transfer the tax challenge to the TRA. Accordingly,after hearing from counsel on 10 February 2022, I made directions for the filing andservice of any affidavits and submissions in support of or opposition to the request.The parties agreed that I should then determine the matter on the papers.The plaintiff's grounds for requesting a transfer[16] The plaintiff has made an affidavit in support of his request. He explains thathe owns a company that exports used car parts. He says that that export market hasdried up as a result of the COVID-19 pandemic. The pandemic has caused shippingcosts to rise dramatically, pushing the price of used car parts beyond the reach of theplaintiff's typical customers. The plaintiff says that his business has more than halved,whereas before the pandemic his business was growing. The plaintiff also explainsthat he is the sole provider for his family and that their financial circumstances aredifficult.[17] The plaintiff says that when he started this proceeding (in February 2020) hiscompany was doing reasonably well, and he was willing to take the risk of an adversecosts order in the High Court if he was unsuccessful. He says he therefore elected tobring his tax challenge in the High Court. He states that if he had known then whathis financial situation would be like now, he would not have elected to bring thechallenge in the High Court. He wants his tax challenge transferred to the TRA forfinancial reasons, because the TRA has a very limited jurisdiction to award costs andbecause it has less formal processes that might lead to a saving in his legal costs andhearing fees.Should the challenge be transferred to the TRA?Relevant legal principles[18] There is only one decision referring to the exercise of the Court's own motionjurisdiction in s 138N(1)(b). In Reefdale Investments Ltd v Commissioner of InlandRevenue,1 Associate Judge Gendall dealt briefly with a request by plaintiffs that theCourt, of its own motion, transfer a tax challenge to the TRA. His Honour said thatthe plaintiffs had not provided any specific reasons why the Court should transfer thechallenge, and in the absence of specific reasons he was not persuaded that it wasappropriate that the TRA, rather than the High Court, hear the challenge.[19] The High Court has a similar jurisdiction, under s 138N(2), to transfer a taxchallenge from the TRA to the High Court. Section 138N(2) applies where a taxpayercommences a tax challenge in the TRA. In those circumstances the Commissionermay apply to the High Court to have the challenge transferred to it. The principlesgoverning such applications are:2(a) The TRA was designed to provide a more informal and less complexforum as evidenced by the anonymity provisions, and the fact that costscannot be awarded in favour of any party. Although it is a specialisttribunal for dealing with taxation disputes, there is no presumption inthe legislation that taxation disputes should normally be dealt with inthe TRA at first instance.1 Reefdale Investments Ltd v Commissioner of Inland Revenue (2008) 23 NZTC 21,795 (HC).2 Commissioner of Inland Revenue v Erris Promotions [2003] 1 NZLR 506 (CA) at [22]–[23];Commissioner of Inland Revenue v Deepsea Seafoods (No 1) Ltd (2004) 21 NZTC 18,469 (HC)at 18,473; and Kensington Developments Ltd v Commissioner of Inland Revenue [2015] NZCA60 at [9].(b) Because the taxpayer has the initial choice of forum, the onus is on theCommissioner to show why proceedings commenced in the TRAshould be transferred to the High Court.(c) Because the High Court is the Court of first instance jurisdiction formajor and significant litigation, transfer to the High Court may bejustified by the magnitude of the tax in dispute, the general or publicimportance of the matter, or its complexity or difficulty.(d) The amount of money involved does not necessarily equate withcomplexity but it does bear upon the issue of significance, both for thetaxpayer and the Commissioner.(e) There may be added reason for hearing the matter in the High Courtwhere the matter in dispute is likely to arise again in future assessments,the challenge involves significant legal issues of precedent, or the factsof the challenge are in dispute.(f) If an appeal seems likely, that may favour a High Court proceedinggiven the additional appeal level if the proceeding commences in theTRA.[20] The parties were agreed that these principles were of assistance in decidingwhether to exercise the High Court's "own motion" jurisdiction in s 138N(1)(b). Iagree, except in respect of the second principle above. The onus must be on theplaintiff to persuade the Court to exercise its jurisdiction to transfer a tax challenge tothe TRA.Applying those principles here[21] The plaintiff must persuade me that I should transfer his tax challenge to theTRA.[22] The amount of money involved in the challenge is reasonably significant. Thisfactor favours leaving the matter in the High Court.[23] There will be some difficulty in dealing with the challenge. The overseaswitnesses mean that there is a need for translators and video links. The difficulty isreflected in the parties' estimate that a six-day hearing is needed. The High Courtdeals regularly with translated evidence and video links, more so than the TRA. Thistends to favour the High Court over the TRA.[24] The facts of the challenge are in dispute. The challenge also seems to havesome complexity. These matters are, again, reflected in the trial estimate. They alsofavour the High Court as the appropriate forum. Even moderate complexity favoursthe High Court over the TRA.3[25] There is a related proceeding in the High Court under the Criminal Proceeds(Recovery) Act. This factor is neutral. I accept the submission of Mr Clews, for theplaintiff, that the two proceedings are not linked in the sense of having to advancetogether.[26] There is nothing before me to suggest that an appeal would be likely. Itherefore regard the additional appeal level (if the challenge were transferred) asneutral.[27] In arguing for a transfer, the plaintiff relies on the fact the TRA has a limitedjurisdiction to award costs and that his legal costs and hearing fees will be lower in theTRA than in the High Court. I accept that that means a transfer would be beneficialto the plaintiff. In Kensington Developments Ltd v Commissioner of Inland Revenue,4the Court of Appeal noted that the TRA was more informal and that costs couldgenerally not be awarded in favour of any party, but then immediately said that therewas no presumption in the legislation that tax disputes should normally be dealt within the TRA. I therefore regard the potential financial benefits of a transfer, arisingfrom the matters identified by the plaintiff, as providing only weak support for atransfer.3 Kensington Developments Ltd v Commissioner of Inland Revenue [2015] NZCA 60 at [29]; andCommissioner of Inland Revenue v Great North Motor Co Ltd [2015] NZHC 1645 at [29].4 Kensington Developments Ltd v Commissioner of Inland Revenue [2015] NZCA 60 at [9].[28] On balance, these factors favour the challenge remaining in the High Court.The plaintiff has not persuaded me that I should transfer the challenge to the TRA.Result[29] I decline to exercise the Court's own motion jurisdiction to transfer theplaintiff's tax challenge to the TRA.[30] The Commissioner is entitled to costs for steps relating to the plaintiff's initialcontention that it could apply to transfer the tax challenge to the TRA and relating tothe plaintiff's request that the Court exercise its jurisdiction to transfer the challenge.If costs cannot be agreed, brief memoranda can be filed.______________________Campbell J