AOKAUTERE v CIR [2023] NZHC 2706

AOKAUTERE v CIR [2023] NZHC 2706 [28 September 2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2023-485-129[2023] NZHC 2706UNDER THE Judicial Review Procedure Act 2016IN THE MATTER OF An application for judicial reviewBETWEEN AOKAUTERE LAND HOLDINGSLIMITEDApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: On the papers.Counsel: M Dewhirst and J K Mahuta-Coyle for ApplicantK I S Naik-Leong for RespondentJudgment: 28 September 2023JUDGMENT OF GRICE J(Costs)[1] Aokautere Land Holdings Ltd (ALHL), the applicant, discontinued theseproceedings by notice dated 3 August 2023. The substantive matter in theseproceedings was due to be heard on 31 August 2023. The parties now seek a costsdetermination.[2] The proceeding involved an application for judicial review. ALHL applied toreview a decision of the Commissioner of Inland Revenue (the Commissioner) to issuea deduction notice under s 157 of the Tax Administration Act 1994 to the liquidatorsof Vey Group Ltd (Vey), who were in liquidation and receivership. The s 157deduction notice required the liquidators to pay amounts that were payable by Vey toALHL to the Commissioner instead.[3] The respondent seeks costs pursuant to r 15.23 of the High Court Rules 2016,which requires the plaintiff/applicant to pay costs up to the discontinuance unless thedefendant otherwise agrees or the Court orders.[4] The respondent submits that costs should be quantified on a category 2B basis.The applicant takes no serious issue with the respondent's quantification of costswhich has been provided.[5] Instead, the applicant resists the cost application, saying that the usualpresumption is displaced because the Commissioner had taken other steps andexercised other statutory powers which had rendered the proceedings moot. Theapplicant says that the Commissioner commenced an audit of the applicant's tax affairs(including in respect of the tax issues in dispute), relying on separate statutory powers,after the commencement of the proceedings. The applicant says that process enablesthe applicant to dispute the amount of tax owed. Accordingly, it says the proceedingswere rendered nugatory. It was for that reason that the applicant says it "responsiblyand promptly discontinued these proceedings" within a reasonable period afterreceiving notice of the audit.[6] The applicant says that while r 15.23 represents a starting point, the Courtretains a discretion as to costs. The applicant submits the following principles applywhen considering whether the presumption is displaced generally:1(a) The Court will not consider the merits of respective cases, unless theyare so obvious that they should influence the costs outcome.(b) The Court will consider the reasonableness of the stance of both partiesup to the point of discontinuance: whether it was reasonable for theplaintiff to bring and continue the proceedings; and for the defendant to1 New Zealand Motor Caravan Association Inc v Queenstown Lakes District Council [2022] NZHC425 at [6(c)].oppose the proceedings. The plaintiff will not be able to avoid thepresumption by showing that at one point it has reasonable grounds forbelieving it would be successful in the proceeding.(c) The reason for discontinuing may be relevant, for example a change ofcircumstances rendering the proceeding unnecessary. However, it mustbe clear that the plaintiffs would have succeeded had the circumstancesnot changed.2[7] The applicant points to a number of decisions in which the Court found thatproceedings had been rendered nugatory by the exercise of powers by the respondent.In those cases costs were not awarded. These included Olive Frances RetirementHome Ltd v Director-General of Health, where Simon France J refused to award costsin favour of the discontinuing plaintiff (in a judicial review) because the Director-General of Health had used other powers to close down the plaintiff's rest home,rendering its judicial review nugatory.3Analysis[8] This judicial review concerned the exercise by the Commissioner of s 157 ofthe Tax Administration Act. The applicant pleaded that the Commissioner hadundermined the applicant's legitimate expectation that it would comply with theCommissioner's Statement CS 20/04 – the Disputes Resolution Process and Fair TrialRights by:(a) not being required to dispute the Commissioner's default assessmentswhile he was contemplating prosecuting, or prosecuting Mr Fugleand/or entities related to him; and(b) not being the subject of civil enforcement action by way of the s 157notice.2 The Star Trust v Hamilton City Council [2016] NZHC 821.3 Olive Frances Retirement Home Ltd v Director-General of Health HC Wellington CIV-205-404-1367, 15 September 2005.[9] The relief sought was an order declaring that the Commissioner's exercise ofthe s 157 power was invalid, setting aside the s 157 notice, and an order that theCommissioner refund to the applicant the money seized by him pursuant to the s 157notice, together with interest.[10] The respondent submits that the applicant's initial disclosure evidence did notsupport the applicant's case that the Commissioner was contemplating prosecuting theapplicant as at the date the Commissioner issued the relevant default assessment.Without that it appears it would be difficult for the applicant to establish its allegationthat the Commissioner had breached the applicant's legitimate expectation by usings 157.[11] The applicant made a specific discovery application, which was dismissed byGwyn J on 13 July 2023.4 Her Honour noted:[59] The evidence already filed for the Commissioner directly addresseswhether, at the relevant times, ALHL was within the scope of theCommissioner's criminal investigation related to the Woodgate GST defaultand the "specific reasoning process" engaged in by the Commissioner inexercising the s 157 power.[60] As I have noted, the applicant has not filed any evidence in support ofthe substantive judicial review application, or this discovery application. Iunderstood from counsel that the applicant has no current intention to file anyevidence.[61] In those circumstances the applicant cannot assert that it has groundsfor asserting that further documents exist, in terms of the second of the foursteps relevant to a discovery for particular discovery.[12] In dismissing the specific discovery application, Gwyn J said:[65] It is difficult to characterise this discovery application as other than afishing expedition, searching for a factual basis on which ALHL mightretrospectively pin its "legitimate expectation", in circumstances where theALHL DAs were not opposed at the time, despite clear notification from theCommissioner of the appropriate statutory procedure for doing so. It will ofcourse be for the Court hearing the substantive judicial review application todetermine whether the concept of legitimate expectation has application in theparticular circumstances of this case.[66] I conclude that the documents sought by the applicant, and not alreadyprovided by the Commissioner, are not relevant to the claim. Nor has the4 Aokautere Land Holdings Ltd v The Commissioner of Inland Revenue [2023] NZHC 1839.applicant provided any basis on which the Court could conclude that there aresufficient grounds for believing that further documents as sought in fact exist.[13] It is impossible for me to form any conclusive judgment in relation to thereasonableness of commencing the proceedings. However, as noted in theunsuccessful specific discovery application, it appears the applicant was on a fishingexpedition to support its claim, which gives rise to considerable doubt as to thereasonableness of bringing proceedings.[14] In addition, based on the material before me, I consider this is not a situationwhere due to the actions of the respondent, the proceeding has been rendered moot,for the following reasons.[15] The applicant refers to the step of the Commissioner issuing letters to Mr Fugleand the applicant on 9 June 2023 as rendering the proceeding moot. Those lettersnotified Mr Fugle and the applicant that the Commissioner was auditing them for taxfrom 1 April 2015 to 31 March 2022 (income tax); and from 1 April 2015 to 31 March2023 (goods and services tax). That included the years 2016 to 2020, for which theCommissioner previously issued the default assessments for income tax, which wereenforced by way of the s 157 notices.[16] The applicant argues that its underlying case "has always been that it still oughtto be able to pursue, through procedures provided for by the Tax Administration Act1994, its dispute as to the amount of tax payable in the 2016 – 2020 income tax years".[17] The respondent however points out that the relief sought in the applicant'sstatement of claim shows the applicant sought for the $1,185,458.37 paid to theCommissioner by the liquidator to be refunded back to the applicant. The issuing ofthe audit letters to the applicant (covering income tax in the relevant years) does notforeshadow any amended assessment to be made by the Commissioner to theapplicant's income assessments in those years. Therefore, I accept the respondent'ssubmission that it is not a certainty that the applicant will be able to dispute the incometax assessments in those years using the dispute resolution procedures under pts 4Aand 8A of the Tax Administration Act.[18] Accordingly, the presumption that costs should be awarded to the respondenton the filing of a discontinuance has not been displaced.[19] Costs are awarded to the Commissioner as itemised in the schedules attachedto the respondent's memorandum dated 16 August 2023 in the sum of $15,650.28.____________________Grice JSolicitors:Dewhirst Law, WhanganuiCrown Law, Wellington