CH'ELLE PROPERTIES (NZ) LTD V CIR HC AK CIV 2004-404-3000

CH'ELLE PROPERTIES (NZ) LTD V CIR HC AK CIV 2004-404-3000 8 November 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2004-404-3000UNDER The Judicature Amendment Act 1972 IN THE MATTER OF an application for Judicial Review under Part 1 of the Judicature Amendment Act 1972 AND IN THE MATTER OF the New Zealand Bill of Rights Act 1990 BETWEEN CH'ELLE PROPERTIES (NZ) LIMITED Plaintiff AND THE COMMISSIONER OF INLAND REVENUE Defendant Hearing: 2 & 3 June 2005 Appearances: D Hayes for Plaintiff R J Ellis & S Reeves for Defendant Judgment: 8 November 2005JUDGMENT OF KEANE JSolicitors: P E Newfield, Auckland for Plaintiff Crown Law Office, Wellington for Defendant[1] In this application for review, and action for damages, Ch'elle Properties (NZ) Limited contends that, when assessing two 1999 claims it had made for input tax credits under the Goods and Services Tax Act 1985, and when withholding and disallowing those credits as Ch'elle contends contrary to an earlier private binding ruling, the Commissioner of Inland Revenue acted illegally, negligently, in breach of his duty and contrary to the New Zealand Bill of Rights Act 1992. [2] Ch'elle asserts its right to receive those credits as purchaser under 114 or more separate contracts for sale and purchase, each from a separate vendor, one of 114 companies especially incorporated by a Mr Ashby, which depended for their viability on an asymmetry in the GST regime on which Ch'elle and the Ashby companies both relied. [3] As a purchaser, registered for GST on an invoice basis, Ch'elle claimed on entering the contracts to be entitled to immediate credits, even though its outlay of cash was token, and there was no immediate or remotely proximate liability on anybody's part to pay output tax. The Ashby companies, all registered for GST on a payments basis, had only to account for the token cash they had received from Ch'elle. Ch'elle itself was not to become liable until it began to sell the properties, and that was to be many years in the future. [4] Ch'elle says that the credits were essential to its ability to complete the Ashby transactions; and that it entered into those contracts only after obtaining from the Commissioner a positive private binding ruling in respect of the first of three essentially similar earlier North Shore transactions. Ch'elle asserts also that, because the Commissioner did not invoke by notice under s 46 his right to withhold payment until he had assessed those claims, either within time or at all, he was under an immediate duty to pay. [5] As a result of the Commissioner not adhering to his ruling, or complying with his duty, Ch'elle contends, it lost the benefit of those contracts and incurred liabilities. As well as seeking declarations, it seeks damages in excess of $80M.[6] The Commissioner seeks an order striking out the action in its entirety. To the extent that the claim impugns the assessments made, and the decisions of the Taxation Review Authority and of this Court upholding the assessments, the Commissioner contends, it constitutes an abuse of process. [7] Any errors in the assessment process, the Commissioner contends also, were cured by the decisions of the Authority and this Court, or rendered of no practical significance. There is no effective remedy that this Court can give, the Commissioner says: the declarations sought would serve no purpose and the claims in damages have no possible basis in law.Context[8] In 1998-99 Ch'elle, soon after it was incorporated, and lacking any assets to speak of, entered into agreements to purchase three sections on the North Shore for in excess of $2M; and, later, 114 sections in Papakura for in excess of $80M. [9] In each case Ch'elle purchased from an entity connected with or incorporated by Nigel Ashby. He was the tax agent for M and W Developments Limited, the owner of the first of the North Shore properties, 18B Edgeworth Road, which Ch'elle agreed to buy on 1 August 1998. The interests Ch'elle acquired in two other North Shore properties on 4 September and 2 November 1998 were on his initiative. [10] On 21 May 1999 Ch'elle agreed to purchase from Mr Ashby's 114 especially incorporated companies their interests as purchasers in the 114 Papakura properties. To give Ch'elle title to those properties the Ashby companies had first themselves to complete purchase from Waverley Developments Limited under conditional contracts. The settlement date for those prior contracts was 31 August 1999. To that extent Ch'elle's interests were contingent. [11] The contracts Ch'elle entered into, both in North Shore and Papakura, had two defining features. One was that Ch'elle had only to outlay token cash at the outset. The balance of the deposit was payable later, and to pay the balance Ch'elle depended on the credits to which it claimed to be immediately entitled. The otherwas that settlement was deferred in the case of the North Shore purchases for 12 years, and in the case of the Papakura purchases between 10 and 20 years. [12] To enter into any of these contracts with confidence Ch'elle needed, it says, to be assured that it would receive the credits it intended to claim. To achieve that assurance, Ch'elle contends, on 12 August 1998, within days of entering into the contract relating to 18B Edgeworth Road, it asked the Commissioner for a private binding ruling that on making that purchase it was entitled to an immediate credit. [13] In a ruling, dated 15 June 1999, the Commissioner confirmed that in that single instance Ch'elle would be entitled to the credit it intended to claim. After receiving that ruling in draft, Ch'elle contends, however, it entered into the balance of the contracts. Within days of the ruling itself, 25 June, Ch'elle made the first of its two eventually disallowed claims. [14] For the month ending 31 May 1999 Ch'elle claimed a credit of $398,333 in respect of 13 transactions, the three on the North Shore, and 10 at Papakura, calculated on the present day value of those properties. (In his ruling the Commissioner had characterised the 18B Edgeworth Road purchase as a credit contract.) On 20 October 1999 Ch'elle made a second return relating to the remaining Papakura properties claiming credits of nearly $9M, this time relying on the estimated market value of the properties on settlement. [15] In September the Commissioner, in accordance with his ruling, paid Ch'elle the credit claimed for the 18B Edgeworth Road purchase. In early January 2000 he issued Ch'elle a notice under s 46 stating that the second credit claimed would be withheld until his assessment was complete. [16] On 28 January the Commissioner issued a notice of assessment allowing fully the first credit claimed, and that day paid into the bank account of Ch'elle's principal shareholder $377,495, the balance then due and interest for late payment. On 8 February, however, Ch'elle was advised that it was not entitled to that payment and on the following day, acting under s 43, one of the Commissioner's officerswithdrew the equivalent amount from Ch'elle's own bank account, to which the payment had been transferred. [17] In March 2000 the Commissioner, under the process prescribed in the Tax Administration Act 1994, issued notices of proposed assessment disallowing both claims, which Ch'elle rejected by a notices of response in May. [18] In December, after the Commissioner had issued a disclosure notice, and Ch'elle a statement of position, the dispute was referred to the Commissioner's adjudication unit. That did not assist Ch'elle. The unit concluded that though on their face neither a sham nor a tax avoidance arrangement, the transactions in their entirety still constituted the latter because they might never be completed. They might merely be a ploy to obtain immediate credits. [19] In November 2001 the Commissioner issued a notice of final determination disallowing the first claim as it related to the Papakura properties and the second completely. The Papakura contracts, the Commissioner concluded, constituted the principal element of a tax avoidance arrangement void as against the revenue under s 76 of the Goods and Services Tax Act. [20] Ch'elle, the Commissioner noted, had only outlaid token cash on each purchase. To meet the deposits owing on invoice it required the credits claimed; and there was also the asymmetry. The vendors were only liable to pay output tax on payments received – to that point only the token cash paid. Ch'elle itself was not to become liable to output tax until it sold the properties purchased, and that was to be years into the future. [21] If s 76 did not apply, the Commissioner concluded, any credits were to be calculated on the basis that the contracts were credit contracts. Ch'elle's credits were to be calculated on the value of the properties at the date of purchase, not at their hypothetical market value when later developed and sold.[22] In a decision, dated 18 July 2003 (Case W 22 (2003) 21 NZTC 11,212), Judge A.A.P. Willy, the Taxation Review Authority, who heard Ch'elle's objection, upheld the Commissioner' assessment. [23] The Papakura transactions, Judge Willy held, were elements in an arrangement the defining purpose of which was to obtain input tax credits without any remotely proximate reciprocal liability. Also, he concluded under s 25, the returns made had ceased to be operative. The underlying contracts had become devoid of effect. The Ashby companies could no longer give title. Waverley had cancelled, when the Ashby companies had not been able to settle on the date stipulated. They, like Ch'elle, had relied on the credits Ch'elle had claimed. [24] The Authority differed from the Commissioner as to the status of the Ashby contracts if s 76 did not apply. They entailed deferred dates he concluded, but not any element of credit. They were not credit contracts. [25] Ch'elle was unsuccessful on its appeal to this Court: Ch'elle Properties (NZ) Ltd v Commissioner of Inland Revenue [2004] 3 NZLR 274. Rodney Hansen J agreed that the contracts were integral to an arrangement void under s 76. The arrangement, he said at para [46], offended two central principles of the Goods and Services Tax Act:The first is the underlying intention that an overall balance will be achieved between the outputs and inputs of a registered person. The second is that there should be some reasonable correspondence between the time at which outputs and inputs in relation to a particular supply are accounted for.And he concluded at para [50]:The tension between the commercial and juristic character of the arrangement is stretched to breaking point. It conforms to the letter of the Act while departing from its fundamental objectives. It has therefore the purpose and effect of defeating the intent and application of the Act.[26] Rodney Hansen J was not deflected from that conclusion by Ch'elle's late submission that the Commissioner had departed, impermissibly, in his assessment from the reasoning, if not the conclusion, of his adjudication unit. The Commissionermight, he held, choose to adhere in his determination to any adjudication made, but he was not obliged to and he could not be constrained by the unit's reasoning. [27] In June 2004 Ch'elle brought this present action seeking declaratory relief by way of judicial review and claiming damages for negligence and for breaches of statutory duty and of the New Zealand Bill of Rights Act 1990. The Commissioner sought to have the action struck out principally as an abuse of process, but also on the basis that Ch'elle had not suffered any loss because it was not entitled to the credits in the first place. The claim under the Bill of Rights Act, the Commissioner contended, could not be justiciable. [28] On 13 September Priestley J decided that the application as then framed was unlikely to succeed. Equally, he considered, it could not readily be divorced from the issue, by then before the Court of Appeal, whether Ch'elle was entitled to the credits withheld and disallowed. He adjourned the Commissioner's application and granted an interim stay: Ch'elle Properties (NZ) Ltd v C of IR (No 2) (2004) 21 NZTC 18,810. [29] On 23 December Ch'elle applied to have the stay rescinded and the strike-out application dismissed, relying on an amended statement of claim then in draft. Ch'elle's sole director, in a supporting affidavit, said that, if Ch'elle could obtain the declarations of illegality sought, it might not need to pursue its appeal. Conversely, if in that it were unsuccessful, a further appeal might be consolidated with the existing appeal. [30] In February this year the Commissioner responded by making his amended application, which I have now to determine. The stay ceased by consent in March.Anatomy of claim[31] The Commissioner's application has been argued on Ch'elle's draft amended statement of claim, which the Commissioner sensibly accepts states Ch'elle's final position.[32] This statement of claim contains six causes of action, the first three of which by way of judicial review seek declarations of illegality principally and as to the status of moneys withheld. The fourth cause of action in negligence, the fifth in breach of statutory duty and the sixth under the New Zealand Bill of Rights Act 1990, all found claims in damages. [33] The statement of claim, even as amended in draft, is deficient. How the extensive narrative with which it begins founds the causes of action in tort in particular is not easy to see. Though Ch'elle claims damages of a very high order, those causes of action are pleaded skeletally. [34] Drawing particularly on Che'lle's sixth cause of action, asserting breaches of s 27 of the New Zealand Bill of Rights Act 1990, I understand Ch'elle to rest its claim on seven complaints against the Commissioner. [35] Ch'elle's primary complaint, set out in the second cause of action, is that the Commissioner without invoking his right under s 46 to withhold the credits from Ch'elle while he assessed its claim, nevertheless did just that. In the absence of a s 46 notice, Ch'elle contends, it was entitled to immediate payment. Ch'elle seeks a declaration that the Commissioner acted illegally then and that he is holding illegally still $9,346,111. A consequence, justifying those declarations, Ch'elle contends, is that it was deprived of the ability to demonstrate that the Papakura purchases were viable and not to be dismissed as a tax avoidance arrangement. It was deprived of profits on the transactions and interest. [36] Embraced within the second cause of action, but independent of it, is the first in which Ch'elle complains distinctly that the Commissioner acted illegally, when he recouped from Ch'elle's bank account under s 43 the credit payment he had made, as he considered in error, on 8 February 2000; and, for that reason also, he is unlawfully in possession of that part of the larger sum to which the second cause of action relates. The third cause of action seeks declarations that, while making his assessment and during the disputes process and adjudication the Commissioner acted illegally in five ways; and that, in consequence, the decisions of the Taxation Authority and this Court on the appeal are invalid.[37] The first two causes of action found, so far as I can see, principally if not exclusively, the causes of action in negligence (the fourth) and for breach of statutory duty (the fifth), where the consequences adverted to are expressed in claims for damages. $17,212,359 is claimed for losses Ch'elle itself suffered on the Papakura contracts. $65,731,800 is claimed on account of the liability Ch'elle is said to have incurred to the Ashby companies. [38] The illegalities alleged in the third cause of action may or may not comprise part of these last two causes of action. They and Ch'elle's principal claims are gathered together in the sixth, under the New Zealand Bill of Rights Act, seeking equivalent damages and exemplary damages of $1.5M.Commissioner's response[39] The Commissioner's position, beginning necessarily with the first three causes of action but extending to the remaining three, is that they constitute an abuse of process or are untenable or futile. [40] To the extent that the declarations of illegality are a collateral attack on the assessment or the decisions of the Taxation Review Authority and this Court on appeal they are, the Commissioner contends, an abuse of process. He contends also that any illegal act or omission on his part in the assessment process, the subject of those decisions, was cured before the Authority, whose decision was vindicated by this Court. [41] To the extent that Ch'elle alleges illegalities, which lie beyond the adjudication process, those might, the Commissioner accepts, have been susceptible of declaratory and related relief at the time of action or review, but the Commissioner contends have been rendered by the adjudication process and by the passage of time devoid of significance. Any declaration would be meaningless. They can have no bearing on the merits of the pending appeal, or confer remedies if Ch'elle were successful.[42] Any conceivable nexus between the alleged illegalities in either category, and the three subsequent damages claims, the Commissioner contends, is without any significance – those latter claims lack any foundation.Principles[43] On this application two or more principles intersect – that as to untenability, that as to abuse of process, and that as to futility, which may be an aspect of untenability, all subsumed within R 186:Without prejudice to the inherent jurisdiction of the Court in that regard, where a pleading— (a) Discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or (b) Is likely to cause prejudice, embarrassment, or delay in the proceeding; or (c) Is otherwise an abuse of the process of the Court,— the Court may at any stage of the proceeding, on such terms as it thinks fit, order that the whole or any part of the pleading be struck out.Untenability[44] As to the usual primary ground, untenability, Richardson P stated inAttorney-General v Prince & Gardener [1998] 1 NZLR 262 at 267, leaving aside the references, the principles which apply:A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not and may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed; the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied that it has the requisite material; but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction.[45] To strike out entirely is a measure of last resort. It is not to be resorted to where there may be a cause of action, but it has been insufficiently or inaccurately pleaded. It is only justified when there is no cause of action disclosed, however itmight be pleaded: see, for instance, Marshall Futures Ltd v Marshall (1992) 1 NZLR 316, Tipping J.Abuse of process[46] Abuse of process, the second principle, arises in revenue cases as a result of s 109 of the Tax Administration Act, which states that a disputable decision made by the Commissioner cannot be challenged except by objection under Part VIII or by challenge under Part VIIIA; s 29 of the Goods and Services Tax Act at the time material was in almost identical terms. [47] Any challenge, therefore, to the validity of an assessment, or the process by which it has been reached, is to be brought by way of objection before the Taxation Review Authority or this Court; only exceptionally does judicial review have any place: Golden Bay Cement Co Ltd v Commissioner of Inland Revenue [1996] 2 NZLR 665; New Zealand Wool Board v Commissioner of Inland Revenue [1997] 2 NZLR 6 (CA); Commissioner of Inland Revenue v Ti Toki Cabarets (1989) Ltd[2001] 1 NZLR 147. [48] In the Wool Board case, Richardson P said, at 14, in the second of six reasons he gave to support that conclusion, that review may exceptionally have a place, but only where abuse of power or unfairness is alleged: the statutory objection procedure has primacy. Judicial review is not excluded, but it is to be regarded as a collateral process directed solely at the validity of the procedure followed by the Commissioner. Hence, it may not impinge about the matters which may properly fall for consideration in the course of the statutory objection procedure. Judicial review is to be reserved for the exceptional cases where the alleged abuse of power or unfairness cannot be resolved in the context of that procedure. To my mind the primacy of the statutory procedure is eroded if a proceeding for judicial review is permitted to continue ahead of the statutory procedure.[49] Richardson P then emphasised that any claim to that exceptional form of relief would have to be compelling:Compelling reasons should be required before the Court is prepared to depart from the principle that judicial review will be appropriate only in rare or exceptional cases. Put another way, the primacy of the statutory objectionprocedure should not be lightly diluted for what are essentially procedural considerations.[50] In Miller v Commissioner of Inland Revenue [2001] 3 NZLR 316 (PC), Lord Hoffman, at 329, when reiterating those principles, added a third basis on which, exceptionally, review might have a place - a fatal foundational error of law, but even then not invariably:It will only be in exceptional circumstances that judicial review should be granted where challenges can be addressed in the statutory objection procedure. Such exceptional circumstances may most typically arise where there is abuse of power: Harley Developments Inc v Commissioner of Inland Revenue at p 736. But they have also been held to arise where the error of law claimed is fatal to the exercise of statutory power and where it will be wasteful to require recourse to the objection procedure.[51] It is unlikely that the objection procedure would ever be wasteful unless, to embark on it, would be to raise an issue that could not be resolved. That puts in question whether, even where there is an abuse of power and unfairness, review is always necessarily the appropriate remedy. [52] The objection procedure is not just primary; it is also curative. The Taxation Review Authority, in the exercise of its jurisdiction, has the same powers of assessment as the Commissioner, and if on an objection the Commissioner is found to have acted in error, that can be cured by the Authority's fresh exercise of discretion. As Salmon J held in Dandelion Investments Ltd v Commissioner of Inland Revenue (1996) 17 NZTC 12,689, the issue before the Authority ought therefore to be what assessment is proper. [53] The Authority must remain of course within its jurisdiction, which derives finally from the objection. In Dandelion Investments Ltd v C of IR (2003) 21 NZTC 18,010 the Court of Appeal held, at para [90], that in its review of issues of validity the Authority had gone beyond its power: the function of the Authority was to hear and determine the objection disallowed by conducting a fresh hearing into the matters raised in the objection, in which questions of validity as well as correctness of the assessment could be considered. But the Authority's role remained one which was concerned with the correctness of the assessment. It did not extend to conducting what was effectively a broad based judicial review Futility[54] The third principle, futility, may be an aspect of untenability. The Court will not entertain claims for relief, where that would serve no purpose - where an issue has already been resolved by other means, or where in some other sense relief would be academic or futile: Fowler & Roderique Ltd v Attorney-General [1987] 2 NZLR 56 (CA), New Zealand Maori Council v Attorney General [1996] 3 NZLR 140 CA, 168; Marshall v National Spiritual Assembly of the Bahá'i of New Zealand Inc{2003] 2 NZLR 205. As to the related doctrine of mootness: Maddever v Umawera School Board of Trustees [1993] 2 NZLR 478.Withholding credits (second cause of action)[55] In its second but principal cause of action by way of judicial review, Ch'elle contends that the Commissioner acted illegally in withholding the credits due on both the GST returns (as to the first by paying it but taking it back, the subject of the first cause of action), because he did not comply with s 46. [56] Section 46 requires the Commissioner either to notify the taxpayer within 15 days of a return that the claim is being investigated, or that he requires further information, or to pay the credit claimed. That duty is absolute: Commissioner of Inland Revenue v Sea Hunter Fishing Ltd (2002) 20 NZTC 17,478, CA. [57] The Commissioner rightly accepts, for the purposes of this application, that he failed to comply with s 46. He did not issue any notice relating to the first return, and he issued a notice relating to the second in January 2000 well after he should have. The Commissioner also contends, however, that these failures cannot justify a declaration now, and with that also I agree. [58] In the Sea Hunter case, the Court of Appeal held that, while the Commissioner might be under a duty to pay out immediately, he could still in his assessment disallow the claim, and the result there was that the taxpayer had to pay back the money with interest: Commissioner of Inland Revenue v Sea HunterFishing Ltd (2003) 21 NZTC 18,090; Sea Hunter Fishing Ltd v Commissioner of Inland Revenue (2004) 21 NZTC 18,569. [59] That is Ch'elle's position. The decisions of the Taxation Review Authority and this Court on appeal confirm that Ch'elle was never entitled to the money in the first place; and until Ch'elle prosecutes its appeal and, unless and until those decisions are set aside, they stand. Che'lle's hold on the money would have been short lived. Should those decisions be overturned by the Court of Appeal, Ch'elle would be entitled to the refunds claimed together with interest at the statutory rate commencing 15 days after the date on which the returns were filed. That is undisputed. [60] If then Ch'elle had seen any worth in declaratory relief, it ought to have pursued that before the hearing of its objection. The only conceivable significance the failure to comply with s 46 could now have would be within the causes of action for damages, which are equally disputed. If then this cause of action is not wholly untenable, or an abuse of process, as I consider it to be, it is certainly futile.Misuse of section 43 (first cause of action)[61] Like the second cause of action, the first does have a foundation, this time in the misuse of s 43 on 9 February 2000 to withdraw from Ch'elle's bank account $374,495. [62] Section 43 enables the Commissioner to recover moneys owed by 'defaulting' taxpayers, but Ch'elle was not in default. The Commissioner, as Ch'elle says, had issued on 28 January a notice of assessment confirming its right to a credit of $398,333 for the period ended 31 May, and paid into Ch'elle's shareholder's bank $377,495, the balance remaining owing and late interest. The Commissioner employed s 43 to recover what he had paid, as he himself then contended, under a mistake. Also, the notice was incorrect as to the sum taken back. The amount said to be in default was $374,495 and the sum taken was $377,495.[63] Once again, the Commissioner accepts, as I consider he must, that s 43 was misused and it cannot be said that this misuse (in contrast to the failure to comply with s 46) could have been cured, that is rectified or subsumed by, the decisions of the Authority or this Court on the appeal. It was outside the assessment process. [64] Once again, however, as with the second cause of action, a declaration now could not serve any useful purpose. The Commissioner could do nothing now to remedy the misuse of s 43 and as things stand Ch'elle was never entitled to the money in the first place. The only purpose the misuse could now conceivably serve is in the disputed claims in damages. This cause of action too, if it is not wholly untenable and an abuse of process, is certainly futile.Assessment and adjudication (third cause of action)[65] Those conclusions hold, I consider, with respect also to Ch'elle's third cause of action in which it contends that the Commissioner is in four ways in breach of his duty under s 6(2)(f) of the Tax Administration Act 1994 to act fairly, impartially and according to law.Computer record[66] First, the Commissioner is said to have acted illegally, by altering his computer record of Ch'elle's account to transform for the July 1999 GST period a credit of $8,974,444 to a debit of $17,985,674, and in making repeated demands on that basis. [67] That this is what happened and that the substituted figure makes no sense is not in dispute. That Che'lle never responded to the demands is equally undisputed. Ch'elle's objection took its course and the Authority, after reviewing the calculation, found it inexplicable and ignored it. That, I consider, was the only sensible response then and can be the only sensible response now. [68] The Commissioner may or may not be right now to contend that no exercise of statutory power or power of decision was involved, which is amenable to review.In one sense the error may simply be administrative. In another it may be seen as an aspect of the Commissioner's power of assessment. I do agree that this chapter was laid to rest by the Authority in his determination, sustained on the appeal that, whatever the arithmetic, Ch'elle was never entitled to any credits in the first place.Reply – statement of position[69] Secondly, Ch'elle contends, the Commissioner, in reply to Ch'elle's statement of position, responded out of time intending to mislead the adjudication unit and to influence it against Ch'elle. [70] The Commissioner did not reply out of time. His reply on 15 February to the statement of position on 18 December was within the response period imposed by s 89M(8), and defined by s 3: 'a two month period starting on the date of issue of a disputant's Statement of Position.' [71] The Commissioner may or may not be right to say that his reply involved no exercise of statutory power or power of decision amenable to judicial review. In one sense what is in issue is the Commissioner's own administrative process. In another, an aspect of the Commissioner's power of assessment. I do accept that this issue was well capable of being resolved by the Authority on objection. It has been overtaken, if not cured, by the Authority's decision.Adjudication report[72] Thirdly, Ch'elle contends, again raising its argument made late in this Court on the appeal, the Commissioner added matters and issues to his adjudication decision, which he knew to be excluded by s 138G, intending to deprive Ch'elle of credits due, cashflow and liquidity, or having that effect. [73] The Commissioner's position remains on this application that vindicated by Rodney Hansen J on the appeal, that he will normally as a matter of good practice hold to the adjudication made, but does not regard himself as bound by his unit's reasoning. The Commissioner, Rodney Hansen J held, is not bound by anadjudication report in his conclusion or his reasoning, and is free to depart from either both before the Authority and on appeal. (Section 138G(1) precludes, he said, taking points not disclosed in a statement of position but that is another matter.) I respectfully agree.Notice of proposed adjustment[74] Fourthly, Ch'elle contends, the Commissioner, in issuing his notice of proposed adjustment, dated 13 November 2003, contravened s 89B(4) of the Tax Administration Act; it is invalid and of no effect. The Commissioner concedes this was a post-assessment action, not able to be cured by the Authority or by this Court on the appeal, and accepts also that the three North Shore transactions do not form any part of the tax avoidance arrangement. He does not rely on the notice and withdraws it. Any passing significance it may have had is now well spent.Declarations of invalidity[75] Relying on these claimed illegalities, perhaps most obviously that relating to the 13 November 2003 notice, and a further highly general claim that the Commissioner delayed the disputes process unreasonably and caused it loss, Ch'elle reaches further. It seeks declarations that it was not required to present its case as to tax avoidance before the Authority, and that the Authority's decision is void, as is that of this Court on the appeal. [76] This, I consider, is a direct collateral attack on the objection procedure. No error of law is alleged, or if alleged has substance, that could be regarded as fatal to the Commissioner's assessment or to the decisions of the Authority or this Court. The illegalities alleged, two with a basis, do not on their face involve misfeasance or touch the validity of the assessments confirmed by the Authority and this Court. To allow Ch'elle to pursue these declarations would be countenance an abuse of process.Negligence (fourth cause of action)[77] In the fourth cause of action Ch'elle alleges, relying on the particulars pleaded earlier, that the Commissioner breached a duty of care he owed by statute to Ch'elle, and caused foreseeable loss. Ch'elle, it may be recalled, seeks $17,212,359 on account of losses it suffered, $65,731,800 on account of its liabilities to the Ashby companies, and $11,250, the cost of preparing the notice of response. [78] Leaving aside for the present whether Ch'elle can mount a claim for breach of statutory duty as it has, the Commissioner contends, Ch'elle cannot, on its present pleadings, or at all, sustain a claim in negligence. I agree.Duty of care[79] A public law duty, as the Commissioner contends, does not necessarily translate to a private law duty of care. There is, for instance, no private law duty simply to 'get the law right': Takaro Properties Ltd v Rowling [1987] 2 NZLR 700 (PC); Morrison v Upper Hutt City Council [1998] 2 NZLR 331 (CA). [80] Also, Ch'elle pleads negligence and breach of statutory duty as a continuum – as a breach of statutory duty either involving or not involving negligence, and that rests on a misconception. There is no cause of action for a negligent breach of a statutory duty: Attorney General v Carter [2003] 2 NZLR 160, CA. There the Court of Appeal, setting out and agreeing with Lord Browne-Wilkinson's analysis in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, 730-731, said at 172 para [41]: There is no such cause of action as negligent breach of statutory duty. If the statute itself creates a duty to take care, a breach of that duty will result in a breach of statutory duty simpliciter, not a negligent breach of statutory duty.And again at 172 para [43]:A negligence claim can logically be brought as one for breach of statutory duty only if there is a statutory duty to take care.[81] If then Ch'elle were to re-express this cause of action, as it is entitled to do, as one in which the statutory context merely informed a duty of care arising at common law, as contemplated by Carter, the question becomes, as the Court confirmed at 169, para [30]: whether it is fair, just and reasonable to require the defendant to take reasonable care to avoid causing the plaintiff loss or damage of the kind for which compensation is being sought.[82] This question, Richardson J said in the earlier case, South Pacific Manufacturing Company Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282, CA at 305, 'is an intensely pragmatic question requiring the most careful analysis.' A duty is not simply to be assumed - as Ch'elle has in this case. The first issue is whether there is sufficient proximity to give rise to a duty of care; Richardson J continued to say at 306:Proximity reflects a balancing of the plaintiff's moral claim to compensation for avoidable harm and the defendants' moral claim to be protected from an undue burden of legal responsibility.[83] Foreseeability, as is apparent from that case, has never been enough to establish proximity. The degree to which the duty alleged is analogous to and coheres with those already established is also highly significant: see most recentlyRolls-Royce New Zealand Ltd v Carter Holt Harvey [2005] 1 NZLR 324 (CA), paras [58], [59]. [84] Where there is sufficient proximity to suggest a duty of care the inquiry must extend more widely and intensely to matters of policy. Even more prominence must be given, the Court said in the Rolls-Royce case, at para [58], to 'the effect of a recognition of a duty on other legal duties and, more generally, on society.' That inquiry, though distinct, extends that entailed as to proximity. They are not severable, particularly where the context is statutory. [85] A duty of care, as Carter illustrates, is not lightly to be superimposed within a wholly statutory context on a public officer, nor, as the New Zealand Security Consultants case illustrates, even on a private person or entity in a partly statutory context, especially where economic loss only is at stake. In the singleCommonwealth case of which I have been told, in which a revenue official has been asserted to be under a duty of care, that was unsuccessful: City Centre Properties Inc v Canada [1993] FCJ No. 1260. [86] Just how the statutory context can govern both proximity and policy can be seen in Carter, where the issue was whether the giving of a survey certificate relating to the seaworthiness of a vessel involved a duty of care to potential purchasers. No such duty of care was superimposed. The purpose of the certificate was to promote safety. Potential purchasers were not amongst those to whom it was directed. The cause of action was struck out for want of proximity. [87] The Court needed to say little, it said, about the policy aspect, to which in reality it had already adverted. It was content principally to say at 171, para [35], that to impose a duty of care was contrary to the public interest:There is a legitimate public interest in regulatory bodies being free to perform their role without the chilling effect of undue vulnerability to actions for negligence.[88] In the City Centre case, McKay J, in the Federal Court of Canada, accepted that an officer of Revenue Canada had been careless, but did not accept that this gave rise to a cause of action in negligence against Revenue Canada. Apart from the fact that economic loss only resulted, McKay J said:It would introduce into the relationship of debtor and creditor under the Income Tax Act, the tort of negligence on the part of taxation officials as a defence to an action to recover taxes or as a basis for damages on the part of the taxpayer.Creditor and debtor[89] That, I consider, is the critical consideration here too. In a relationship which is, in its essence, that of creditor and debtor, and highly defined in every degree, did the Commissioner assume, or must he be deemed to have assumed, a duty of care to avoid acting to Ch'elle's detriment on which Ch'elle was entitled to rely? Everything, I think, points to the contrary.[90] Taxes of whatever species are debts owed to the Crown; and the Commissioner's responsibility as the Crown's agent is to collect that revenue for public purposes: Cates v CIR [1982] 1 NZLR 530, 534, CA McMullin J. [91] The first of the two statutes, governing the relationship between the Commissioner and Ch'elle in this case is the Goods and Services Tax Act, which imposes the liability, and the correlative right to a credit. It imposes a broadly based consumption tax, at a flat rate, which GST registered persons are liable to collect and pay. It creates a relationship of debtor and creditor in which the Commissioner is most usually but not always the creditor: King v Bennetts (1994) 16 NZTC 11,370, McKay J; L R McLean & Co Ltd v Commissioner of Inland Revenue [1994] 16 NZTC 11,211. [92] No less relevant is the Tax Administration Act, which governs the process of assessment, s 6A(2) of which charges the Commissioner with 'the care and management of the taxes covered by the Inland Revenue Act '; and by s 6A(3) a duty 'to collect over time the highest net revenue that is practicable within the law.' Indispensable to the discharge of these duties is the accurate assessment of the taxpayer's liability; and in this present context those features of the statutory scheme, on which the abuse of process cases turn, re-assert themselves. [93] There is first the accent on efficacy. The Commissioner's power of assessment may not be plenary but it is considerable and assessments, once made, enjoy a level of immunity. To ensure accuracy, for instance, the Commissioner has the ability to amend an assessment within 4 years, or, where there has been a knowing or fraudulent failure to disclose, even later: ss 108B, 113 Tax Administration Act. A failure to comply with the statute imposing the tax does not affect the validity of assessment: s 114. Where there is an objection the Commissioner can alter an assessment but that is discretionary: s 127. The Commissioner's assessment, once made, stands until set aside by the Taxation Review Authority or this Court. [94] There is, secondly, the accent on accountability and due process. The Commissioner's assessment is disputable and the taxpayer is secured equality ofarms. The disputes process enables the accuracy of an assessment to be tested, when it is merely proposed; and once an assessment is made, the taxpayer can challenge any aspect of it by objection before the Authority or this Court. Within the ambit of the objection taken, the Commissioner's process is open to scrutiny, and the Authority and this Court have a power of reassessment. [95] A third defining feature of the statutory scheme, which is consistent with both of these features, is that the Commissioner, like the taxpayer, can be liable to pay interest on moneys due, but not paid, under the statutory process, 'to compensate for the loss of use of money:' s 120A. That is the only remedy offered. [96] To accord to the taxpayer an ability either to challenge or to counteract an assessment by common law action in negligence, as McKay J said in the Revenue Canada case, could only subvert the creditor-debtor relationship between Commissioner and taxpayer, and the intricate balance achieved by the statutory scheme between efficacy, accountability and due process.Private binding ruling[97] The Commissioner's ability, even duty, to give a private binding ruling in advance of a transaction, under s 91E of the Tax Administration Act does not, I consider, admit any different conclusion. The creditor-debtor relationship is not disturbed. A ruling is no more than a means to obtain an assessment in advance. [98] Moreover, the context within which a ruling can be given is carefully circumscribed. The information a taxpayer must give, when applying, is closely prescribed in s 91EC and 91ED. The Commissioner need not give a ruling if that calls for assumptions about the future: s 91E(3). The Commissioner may not give a ruling if that requires facts to be determined, or the ruling sought is hypothetical, or essential facts are lacking: s 91E(4). Any assumption on which a ruling is based that turns out to be incomplete or wrong will deprive it of effect: s 91EB(2). And, all else being as it should be, though a ruling must be adhered to, that is only as to the transaction or transactions to which it relates: s 91EA. Its effect is finite.[99] The Commissioner does have the ability to rule on recurring transactions: s 91E. But a ruling will only be binding if the full scope of the arrangement to which it is to relate is disclosed: s 91ED. A ruling relates only to the arrangement disclosed in the transaction: s 91EH(b). [100] The content of the application is critical. Section 91ED(1) imposes on an applicant a duty to disclose what is proposed as completely as can be:An application for a private ruling must - (a) identify the applicant; and (b) disclose all relevant facts and documents relating to the arrangement for which the ruling is sought; and (c) state the taxation laws in respect of which the ruling is sought; and (d) state the propositions of law (if any) which are relevant to the issues raised in the application; and (e) provide a draft ruling.[101] The extent to which disclosure is required appears also from the wide definition of 'arrangement' in s 3, which widens further when a ruling is applied for:Arrangement – (a) means a contract, agreement, plan or understanding, whether enforceable or unenforceable, including all steps and transactions by which it is carried into effect; (b) for the purpose of Part 5A includes facts that the Commissioner considers are material or relevant as background or context to a pilot or a product ruling.[102] That all a taxpayer can expect is to be taxed according to the ruling on the transaction disclosed, and none other, is confirmed by s 91EA. [103] This aspect of the statutory regime, once examined, is not then in any sense exceptional. If anything, it confirms that the relationship between the Commissioner and taxpayer is that of creditor and debtor, and is exclusively statutory. It is inconsistent with any overarching common law duty of care.Moral calculus[104] Such a duty of care is incapable also it seems to me, of being supported by the moral calculation that Richardson J, in the New Zealand Security Consultantscase, regarded as fundamental. [105] The Commissioner must, of course, comply with s 6 of the Tax Administration Act. He is called on to use his 'best endeavours to protect the integrity of the tax system'; and under s 6(2)(a) to safeguard 'the rights of taxpayers to have their liability determined fairly, impartially, and according to law'. But that is 'a best endeavours' obligation: s 6(1). It is given content in the myriad duties to which the Commissioner is subject specifically. It is not to be understood to impose any duty, which is wider or higher. [106] Furthermore, in counterpoise to the Commissioner's duty is that imposed on the taxpayer to 'comply with the law': s 6(2)(d), s 15B. And from that perspective Ch'elle's moral claim is hardly compelling. The arrangement by which Ch'elle sought instant credits has been characterised thus far as a tax avoidance scheme and nothing more. By this present action Ch'elle seeks instead to achieve a result which is the same or better by way of damages. In both cases it has been ambitious for a very large unwarranted private gain at public expense. [107] However approached, whether as a matter of proximity or of policy, it cannot be fair, just and reasonable to impose on the Commissioner the duty of care Ch'elle seeks to assert.Reliance and causation[108] Ch'elle cannot, I consider moreover, sensibly say that it had any ground to rely on the Commissioner being subject to any such duty, and cannot point to any breach that caused any of the losses it claims. [109] Ch'elle's claim that it lost the benefit of the GST refunds claimed (at least as from the 15 days after May 1999 until the date of assessment, when it would havebeen required to pay half back as non-deferrable tax with interest, and then as to the balance until the date of the Authority's judgment), and thus lost the ability to meet the Papakura deposits, from which all else flows, rests on reliance. [110] In the first place, however, Ch'elle could never sensibly have relied, I consider, on the private binding ruling, dated 15 June 1999, relating to 18B Edgeworth Road, as a safe foundation for the Papakura transactions, and cannot do so now. Ch'elle obtained from the Commissioner all that it was entitled to, the credit relating to that transaction. The Papakura transactions were not disclosed in the application. On Ch'elle's own case they were not entered into until Ch'elle knew what in principle the ruling was to be. They are right outside the terms of the ruling, and that is not simply a formal deficiency as the statutory prescription makes clear. [111] The Papakura transactions are also more than merely recurring instances of the Edgeworth Road transaction, to which the ruling might have extended had Ch'elle chosen to ask. As is evident from the Authority's decision and that of this Court on appeal, those transactions are not to be seen singly. Seen together, as they must be, they constitute an altogether different order of arrangement, the purpose or effect of which was, as the Authority and this Court found the Commissioner rightly decided, tax avoidance. [112] Secondly, unless Ch'elle was entitled to rely on the ruling, it had no basis for assuming that the Commissioner would pay the credits claimed instantly. It could not ever have discounted the possibility that the Commissioner might under s 46 withhold the credit, while he completed his investigation and assessment. And the reciprocal applies. Nor could the Commissioner be expected to have foreseen that Ch'elle's undertaking at Papakura, as the Authority found, at paras 201-202, stood or fell on instant access to public money. The most that Ch'elle could ever have expected, and the Commissioner ever have foreseen, was that Ch'elle might have a right to interest for loss of use of money. [113] So the position remains. If Ch'elle succeeds on its appeal it will be entitled to the credits claimed with interest. If it does not that will confirm that it was neverentitled to the credits in the first place; and, had the Commissioner paid the credits, Ch'elle would now have to repay them with interest.Breach of statutory duty (fifth cause of action)[114] These conclusions as to negligence, extend also, and are equally fatal I consider, to Ch'elle's nearly identical claim for breach of statutory duty because there too, once again, the statute said to be breached is determinative. In X (Minors) v Bedfordshire County Council (1995) 2 AC 633 HL, Lord Brown Wilkinson said at 731: in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However, a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty.[115] In Tai Hobson v The Attorney-General (Department of Corrections) CIV 2003-404-6960 HC AK 23 September 2004, Heath J said at para 101:In my view, the correct approach is to interpret the statute to ascertain whether Parliament intended to create a private law remedy as well as to confer public duties on particular public officials. Other factors can only assist (and ought only to be considered) if Parliament's will is not clear from the expressed words used in the Act read in the light of the purpose of the statute. Such an approach is entirely consistent with s 5 Interpretation Act 1999.[116] The revenue statutes contain no such clear indication. Their purpose is to garner revenue by a fair process securing equality of arms between the taxpayer and the Commissioner and in the instances in which Ch'elle seeks a remedy, I see no room for any independent right to damages for breach of statutory duty; only for misfeasance in public office. [117] That being so I should add this. I do not see in any of those pleaded instances any basis for Ch'elle to advance a fresh cause of action alleging misfeasance. None of the misconduct Ch'elle attributes to the Commissioner, in respect of which it seeks a remedy, begins to go that far. In paragraphs 124-128 of the draft statement of claim, Ch'elle does allege quite generally that an official attempted to induce theowner of one of the North Shore properties to break its contract with Ch'elle, and was successful. But that is not reflected in any prayer for relief, and remains in limbo. [118] In addition, Ch'elle could, at the date of the breach, have brought an application by way of judicial review seeking an order in the nature of mandamus, or applied for summary judgment, as in Sea Hunter. The existence of those remedies, which were not sought, stands in the way of a belated claim for damages: seeAttorney General v Prince & Gardener, 276; X v Bedford, 769.New Zealand Bill of Rights Act (sixth cause of action)[119] Ch'elle's sixth cause of action, in which it contends that the Commissioner must comply with s 27 of the New Zealand Bill of Rights Act 1990, and repeatedly failed to do so, justifying the damages claimed and exemplary damages of $1,500,000, also rests, I consider, on a misconception. [120] Under the rubric 'right to justice', s 27(1) does secure the right to 'natural justice'; and the ability to apply for judicial review of any determination affecting rights, obligations or interests protected or recognised by law. Section 27(2) secures a right to bring civil proceedings against the Crown. But that 'right to justice,' or to 'natural justice,' has never been understood to mean 'substantive justice', writ large, or to confer a correlative cause of action. [121] The consistent tendency of authority is that s 27(1) does not extend beyond securing procedural fairness: Tertiary Institutes Allied Staff Association Inc v Tahana [1998] 1 NZLR 41 (CA), at 54 Keith J; Grey v M [1998] 2 NZLR 161 (CA);Shortland v Northland Health Ltd [1998] 1 NZLR 433, 445. (The issue is valuably discussed in The New Zealand Bill of Rights, Rishworth, Huscroft, Optican and Mahoney, Oxford, Chapter 27.) [122] Moreover, any breach of natural justice on the part of the Commissioner, before the assessments were issued, has now or could have been cured on the objection before the Taxation Review Authority and on appeal to this Court. Eachfunctions by a prescribed fair process under which taxpayer and Commissioner enjoy equality of arms.Conclusion[123] The causes of action on which Ch'elle relies are either untenable, an abuse of process or futile and I see no basis on which Ch'elle could resurrect its claim by amending its pleadings. The action as a whole will be struck out. [124] The Commissioner is entitled to costs. These I consider properly lie within Scale 2B and with disbursements can be settled by the Registrar. Any party who wishes to be heard on costs, however, is to file and serve within 14 days of the issue of this decision a memorandum identifying any question that I may have to resolve myself. _____________ P.J. Keane J