BEN NEVIS FORESTRY VENTURES LIMITED & Ors v COMMISSIONER OF INLAND REVENUE [2014] NZHC 441

BEN NEVIS FORESTRY VENTURES LIMITED & Ors v COMMISSIONER OF INLAND REVENUE [2014] NZHC 441 [12 March 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-007682[2014] NZHC 441BETWEEN BEN NEVIS FORESTRY VENTURESLIMITED and BRISTOL FORESTRYVENTURE LIMITED, CLIVE RICHARDBRADBURY AND GREGORY ALANPEEBESPlaintiffsAND COMMISSIONER OF INLANDREVENUEDefendantHearing: On the papersCounsel: G Judd QC for PlaintiffsR Roff for DefendantJudgment: 12 March 2014JUDGMENT OF KATZ J(Costs)This judgment was delivered by me on 12 March 2014 at 3:00 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarSolicitors: Crown Law Office, WellingtonWynyard Wood, AucklandCounsel: G Judd QC, AucklandIntroduction[1] The defendant, the Commissioner of Inland Revenue, successfully challenged the jurisdiction of this Court to consider and determine proceedings brought againsther by the plaintiffs (together, "Ben Nevis").1 The Commissioner now seeks indemnity costs or, alternatively, increased costs.Background[2] Ben Nevis invested in a forestry investment scheme known as the Trinity scheme. In 2004 Venning J found the Trinity scheme to be an unlawful taxavoidance scheme ("2004 Judgment").2[3] Extensive litigation has ensued. The investors appealed the 2004 Judgment to the Court of Appeal, unsuccessfully.3 They then appealed to the Supreme Court, but were unsuccessful there also.4 The Redcliffe litigation then followed, in which some of the Trinity investors challenged the 2004 Judgment on the basis that the Commissioner had fraudulently applied the wrong subpart of the Income Tax Act 2004 in reassessing the taxpayer investors. Those proceedings were ultimately struck out by the Supreme Court.5 More recently, certain investors and the architect of the scheme have unsuccessfully sought to collaterally attack the 2004 Judgment inMuir and Ors v Judicial Conduct Commission6 and Accent Management Limited vAttorney General.7[4] Ben Nevis then brought these proceedings, in which it sought to set aside the 2004 Judgment and re-open the original challenge proceedings on the grounds of presumptive bias on the part of Venning J.1 Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue [2013] NZHC 2361, (2013) 26 NZTC 21-032.2 Accent Management Limited v Commissioner of Inland Revenue (2005) 22 NZTC 19,027 (HC).3 Accent Management Limited v Commissioner of Inland Revenue [2007] NZCA 230, (2007) 23 NZTC 21,323.4 Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 (with an addendum noted at [2009] 2 NZLR 358).5 Commissioner of Inland Revenue v Redcliffe Forestry Venture Limited [2012] NZSC 94, [2013]1 NZLR 804.6 Muir and Ors v Judicial Conduct Commission [2013] NZHC 989, (2013) 26 NZTC 21-019.7 Accent Management Limited v Attorney General [2013] NZHC 1447, (2013) 26 NZTC 21-020.[5] The Commissioner filed a protest to jurisdiction under r 5.49 of the High Court Rules, on the basis that the High Court is now functus officio and therefore has no jurisdiction to set aside the 2004 Judgment. The Commissioner also applied to dismiss or strike out the proceedings on various jurisdictional grounds. The Commissioner submitted that, as this Court is now functus officio, any challenge to the 2004 Judgment can only be heard by an appellate court. The Commissioner'sdismissal application also asserted that the pleading disclosed no reasonably arguablecause of action, was likely to cause prejudice or delay, was vexatious, and was anabuse of process. However, the sole issue argued before me was that of jurisdiction.[6] Ben Nevis submitted that the 2004 Judgment was a nullity because Venning J was presumptively biased due to an alleged tax obligation that resulted in him being"beholden" to the Commissioner. The rule against bias is an aspect of natural justice and there is authority to the effect that breaches of natural justice can render ajudgment a "nullity". I noted in the Judgment, however, that the allegations of presumptive bias in this case are far removed from the facts of any previous case where a judgment or order has been found to be a nullity. The nullity exception is usually applied where a procedural breach is both obvious and egregious. Nevertheless, in light of the authorities relied on by Ben Nevis, I concluded that, if the 2004 Judgment had not been appealed, I would have been reluctant to dismiss these proceedings solely on jurisdictional grounds.[7] The 2004 Judgment was, however, appealed. It was upheld on appeal by both the Court of Appeal and the Supreme Court. Given those circumstances I concluded that:8In light of the decisions of St Nazaire, Hikuwai v Sanford Limited, Collier v Creighton, UDC Finance Ltd v Madden and the Redcliffe litigation itself, it is not, in my view, even remotely arguable that this Court now has jurisdiction to set aside the 2004 Judgment. To hear and determine these proceedings would require the High Court to disregard the hierarchical nature of our court system and, in effect, declare the decisions of its superior courts to be nullities. The relief sought by Ben Nevis is indisputably beyond the jurisdiction of this Court.8 At [51].Is the Commissioner entitled to indemnity costs?Submissions[8] Under r 14.6(4) of the High Court Rules, the Court may order a party to pay indemnity costs if the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding. Various situations justifying an award of indemnity costs were outlined by the Court of Appeal in Bradbury v Westpac Banking Corporation.9[9] The Commissioner submitted that Ben Nevis's conduct fell within four of the categories set out in Bradbury v Westpac Banking Corporation, namely:(a) particular misconduct that causes loss of time to the court and to other parties;(b) commencing or continuing proceedings for some ulterior motive;(c) doing so in wilful disregard of known facts or clearly established law;(d) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J's "hopeless case" test.[10] The Commissioner further submitted that this proceeding should be viewed in light of Ben Nevis's litigation history. Ben Nevis has launched numerous collateral attacks by litigation on the Commissioner's assessments and theirconfirmation as correct in the challenge proceedings that concluded with theSupreme Court's Ben Nevis judgment in 2008.10[11] The Commissioner noted that indemnity costs have on a number of occasions been awarded against Ben Nevis for making collateral attacks and commencing hopeless proceedings. The Commissioner submitted that, when viewed in context,9 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [29].10 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289.this proceeding can only be seen as a further attempt to frustrate and delay the inevitable payment of the tax debt owing.[12] Ben Nevis submitted, on the other hand, that an indemnity costs award would be inappropriate for a number of reasons. In particular, Ben Nevis submitted that the Commissioner failed on the main ground advanced in her application and (very brief) written submissions, namely that the correct procedure was to seek to raise the issue of bias by way of a further appeal on the grounds of fresh evidence. Rather, the Commissioner succeeded on a ground that was not advanced until the Commissioner's reply, namely that the High Court had no jurisdiction to set aside the 2004 Judgment in circumstances where that Judgment had been appealed.[13] Further, Ben Nevis submitted that in light of Elias CJ's comments in R v Smith11 that presumptive bias on the part of Judges can lead to the relevant judgment being set aside, it was entitled to think that, if it established the factual allegations in the statement of claim, the 2004 Judgment would necessarily have to be set aside in the Court's inherent jurisdiction. The Supreme Court's Redcliffe judgment12concerned the Court's power to set aside judgments on questions of law which have been the subject of appellate decisions. It did not, however, prevent the first instance Court from acting in an ex debito justitiae situation. There is no reason why BenNevis's advisers should have interpreted Redcliffe to exclude the High Court having inherent jurisdiction in the circumstances pleaded in the statement of claim.[14] Ben Nevis also challenged the various heads of "particular misconduct"relied on by the Commissioner. Further, it submitted that the objective in commencing the proceeding was to get the 2004 Judgment set aside. There was no ulterior motive, as alleged by the Commissioner.[15] Taking all of these matters into account, Ben Nevis submitted that an award of indemnity costs was not justified.11 R v Smith [2003] 3 NZLR 617 (CA)12 Commissioner of Inland Revenue v Redcliffe Forestry Venture Limited [2013] 1 NZLR 804 (SC).Was Ben Nevis's case "hopeless"?[16] It is not necessary to consider each of the grounds relied on by the Commissioner in detail, because Ben Nevis's case, in my view, fell squarely withinthe "hopeless case" category referred to in Bradbury v Westpac Banking Corporation.[17] The law on the High Court's jurisdiction to set aside one of its own decisions, once it has been the subject of appeal, is well established. My conclusion, as noted at [7] above, was that it was not even "remotely arguable" that this Court hadjurisdiction to hear and determine the proceedings. The relief sought by Ben Nevis was indisputably beyond the jurisdiction of the Court.[18] I further observed that these proceedings had the potential to require the High Court to not only, in effect, declare decisions of the Court of Appeal and Supreme Court (on appeal from the 2004 Judgment) to be nullities, but also to potentially re-open aspects of the Court of Appeal's separate recusal decision, a matter that is alsobeyond the jurisdiction of this Court.13[19] Given these findings, Ben Nevis can take no comfort in my conclusion that, had the 2004 Judgment not been the subject of appeals, I would have been reluctant to dismiss the proceedings solely on jurisdictional grounds. The fact is, the 2004 Judgment was appealed. As a consequence, this Court no longer had any jurisdiction to set aside its original judgment.[20] Nor do I accept Ben Nevis's submission that, in effect, it should not bepenalised in costs for bringing a hopeless case because of the way in which theCommissioner's argument was advanced and developed.[21] At the heart of the Commissioner's case, from the outset, was the submissionthat this Court is now functus officio, as any challenge to the 2004 Judgment can only be heard by an appellate court. The Commissioner's argument was developedand refined during the course of the hearing. However, at its core, the key13 At [47].proposition remained the same, namely that only an appellate court can set aside the 2004 Judgment. I accepted that proposition.[22] In conclusion, Ben Nevis's case fell squarely within the "hopeless case"category set out in Bradbury v Westpac Banking Corporation. It should have been apparent to Ben Nevis prior to filing proceedings that its case was hopeless. The proceeding was unnecessary and improper. It was a collateral attack on an earlier decision of this Court which this Court no longer has any jurisdiction to set aside. The Commissioner should not have been put to the expense of defending such a case.[23] Given my conclusion that the case was hopeless from the outset, it is not necessary to consider whether Ben Nevis's conduct also fell within the various other categories of misconduct set out in Bradbury v Westpac Banking Corporation, as alleged by the Commissioner.Quantum[24] An award of indemnity costs against the plaintiffs is clearly justified, on the basis that the case was hopeless from the outset.[25] Ben Nevis did not challenge the quantum of costs claimed by the Commissioner as being unreasonable. Crown Law claims costs for the period from service of the proceedings until shortly after the hearing, in the sum of $22,300.60. The hours incurred appear to be within the expected range and the hourly rates claimed are reasonable.[26] In addition, costs of $30,000 are claimed in respect of senior counsel'sinvolvement from 4 February 2013 to 10 June 2013. Given that Ben Nevis had engaged senior counsel, and there is a long and complex history of related litigation, the Commissioner was in my view justified in retaining senior counsel in this matter.Counsel's costs are accordingly also recoverable.Result[27] I award indemnity costs in favour of the defendant in the sum of $60,145.69,14 together with disbursements of $2,751.77.____________________________Katz J14 This figure is GST inclusive and is taken from Schedule A to the Commissioner's Memorandum.It differs very slightly from the figure set out at [22] of that Memorandum. I have taken the lower figure.