FALOON V COMMISSIONER OF INLAND REVENUE HC ROT CIV-2009-470-0319

FALOON V COMMISSIONER OF INLAND REVENUE HC ROT CIV-2009-470-0319 21 August 2009IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY CIV-2009-470-0319BETWEEN CLARENCE JOHN FALOON AND RUTH ENID FALOON Applicants AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 20 August 2009 Appearances: Applicants appearing in person J Oliver for Respondent Judgment: 21 August 2009 at 4:30 pmJUDGMENT OF ASHER JThis judgment was delivered by me on 21 August 2009 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules .. Registrar/Deputy Registrar .. DateC & R Faloon, 68 Waikite Road, Welcome Bay, Tauranga 3112 Crown law Office, PO Box 2858, Wellington 6140Introduction[1] This is an application for extension of time brought under s 89M(11) of the Tax Administration Act 1994 ("the TA Act"). The application was filed in response to the service on Clarence John Faloon, one of the applicants, of a statement of position, issued under the TA Act on 1 April 2009. [2] Mr and Mrs Faloon have filed a joint application for the extension of time, despite the fact that the statement of position stated that the tax payer was Clarence John Faloon, and appears to relate only to his affairs. The application is an 11-page document in which many allegations are made. However, Mr and Mrs Faloon, who both appeared, made it very clear that the only substantive issue that is to be determined that arises from the application is whether an extension of time should be granted. [3] Section 89M(4), (5), (7), (11) and (12) provide:(4) The Commissioner's statement of position in the prescribed form must, with sufficient detail to fairly inform the disputant — (a) give an outline of the facts on which the Commissioner intends to rely; and (b) give an outline of the evidence on which the Commissioner intends to rely; and (c) give an outline of the issues that the Commissioner considers will arise; and (d) specify the propositions of law on which the Commissioner intends to rely. (5) If the Commissioner issues a disclosure notice to a disputant, the disputant must issue the Commissioner with the disputant's statement of position within the response period for the disclosure notice. (7) A disputant who does not issue a statement of position in the prescribed form within the response period for the statement of position, is treated as follows:(a) if the Commissioner has proposed the adjustment to the assessment, the disputant is treated as having accepted the Commissioner's notice of proposed adjustment or statement of position: (b) if the disputant has proposed the adjustment to the assessment, the disputant is treated as not having issued a notice of proposed adjustment.] (11) The disputant may apply to the High Court for more time within which to reply to the Commissioner's statement of position if— (a) the disputant applies before the expiry of the response period for the Commissioner's statement of position; and (b) the disputant considers it unreasonable to reply to the Commissioner's statement of position within the response period, because the issues in dispute had not previously been discussed between the Commissioner and the disputant. (12) The High Court shall, in considering an application under subsection (11), have regard to the provisions of section 89A and the conduct of the parties to the dispute.Respective arguments[4] Mr Faloon's primary argument in oral submissions was that the Commissioner should be prepared to discuss the issues that arise from the statement of position with him and his wife before he should be obliged to respond to it. He relies on s 89A of TA Act, which provides:89A Purpose of this Part(1) The purpose of this Part is to establish procedures that will— (a) Improve the accuracy of disputable decisions made by the Commissioner under certain of the Inland Revenue Acts; and (b) Reduce the likelihood of disputes arising between the Commissioner and taxpayers by encouraging open and full communication— (i) To the Commissioner, of all information necessary for making accurate disputable decisions; and (ii) To the taxpayers, of the basis for disputable decisions to be made by the Commissioner; and(c) Promote the early identification of the basis for any dispute concerning a disputable decision; and (d) Promote the prompt and efficient resolution of any dispute concerning a disputable decision by requiring the issues and evidence to be considered by the Commissioner and a disputant before the disputant commences proceedings. (2) This Part does not apply with respect to any tax returns or notices of assessments that are, or become, subject to objection proceedings under Part 8. (3) Despite section 1(2), this Part applies to disputable decisions made by the Commissioner for [tax years] before the 1994-95 [tax year].]]Mr Faloon appeared to go so far as to submit that s 89A places an obligation on the Commissioner to talk to a tax payer if the tax payer wishes to so communicate. He points to the purpose in s 89A(1)(b) of encouraging "open and full communication". [5] Mr Faloon referred to the length of the Commissioner's statement of position (some 57 pages). He also referred to a tax return he filed dated 2 March 2009, which he said was the equivalent, in any event, of the filing of a disputed statement of position. [6] When I pressed him on why he needed more time he said that he would benefit from some more time in which to file a statement of position. However, I was left with the overriding impression that his concern was not so much to obtain an extension of time but, rather, to achieve a position where the Commissioner would talk to him directly. [7] Mr Oliver for the Commissioner opposes the granting of any extension of time. He submits that there is no good reason why Mr Faloon has not filed a statement of position, and that the position he is taking in seeking the extension of time is tactical. He points to the very long history of litigation with Mr Faloon dating back to 1987, and the plethora of decisions involving the Commissioner and Mr Faloon over recent years.The background[8] There have been numerous cases involving Mr Faloon in recent years. The decisions that have been released include the following: a) Bank of New Zealand v Faloon HC WN M354/96 18 October 1996, Goddard J; b) Faloon v District Land Registrar and Palmerston North Airport Limited (No 1) HC WN M453/96 6 March 1997, Ellis J; c) Traveller and Fatupaito as liquidators of Trade Lines Limited v Faloon HC WN M137/97 1 May 1997, Neazor J; d) Faloon and Piesse v District Land Registrar [1997] 3 NZLR 498; e) Trade Lines Limited (in liquidation) v Piesse HC WN M181/97 20 May 1997, Gendall J; f) Trade Lines Limited (in liquidation) v Faloon, Piesse and District Land Registrar HC WN M195/97 27 May 1997, McGechan J; g) Faloon and others v Attorney-General HC WN CP310/99 5 October 2000, Gendall J; h) Faloon v Attorney-General CA255/00 and CA280/00 23 July 2001; i) Faloon v Trade Lines Limited (in liquidation) CA121/97 and CA122/97, 13 December 2001; j) Faloon v Commissioner of Inland Revenue & Ors (2002) 20 NZTC 17,618; k) Faloon v Commissioner of Inland Revenue (2005) 22 NZTC 19,653;l) Commissioner of Inland Revenue v Central Equipment Co Limited(2006) 22 NZTC 19,891; m) Central Equipment Company Limited v Commissioner of Inland Revenue (2008) 23 NZTC 21,722; n) Central Equipment Company Limited v Commissioner of Inland Revenue (No. 2) (2008) 23 NZTC 21,861; and o) Central Equipment Company Limited v Commissioner of Inland Revenue (2008) 23 NZTC 21,965. [9] The factual and procedural background leading to all these different proceedings is complex. However, they all appear to have their origin in the two events, summarised by Gendall J in Faloon and others v Attorney-General HC WN CP310/99 5 October 2000, and relied on in Faloon v CIR (2002) 20 NZTC 17,618 and in Faloon v CIR (2005) 22 NZTC 19,653. The first of the two events was the carrying out of a pipe diversion of a stream ("the Kawau Stream"), which diversion ran across the land owned by a company, Trade Lines Limited, pursuant to an arrangement between Mr Faloon's father, now deceased, and the Palmerston North City Council. Trade Lines Limited was a Faloon family company. The second event was the taking of a portion of land owned by Trade Lines Limited by the Crown for the purposes of the Palmerston North Airport. At all material times Trade Lines Limited owned the land and the Crown paid $80,000 to it on account of compensation under the Public Works Act 1991, after the land was taken by proclamation in December 1993. Trade Lines Limited is in liquidation. [10] All these proceedings relate in one way or another to these two events. Mr Faloon in his submissions recounted, again, those perceived past injustices.The extension of time[11] A disputant seeking more time within which to reply to the Commissioner's statement of position must show under s 89M(11)(b) that it is unreasonable for thedisputant to have to reply to the Commissioner's statement of position within the response period, because the issues in dispute had not previously been discussed between the Commissioner and the disputant. Subsection (12) says that the High Court shall in considering an application under ss (11), have regard to the provisions of s 89A and the conduct of the parties to the dispute. [12] It is clear that the length of the Commissioner's statement of position is a result of the need to traverse the issues raised by Mr Faloon in earlier proceedings and interchanges. Mr Faloon asserts from the bar that there has been no relevant discussion between the parties. Mr Oliver states from the bar that there have been discussions. What is clear is that the issues have been traversed and argued to almost unimaginable lengths between the parties, over a long succession of Court cases initiated by Mr Faloon. [13] In my view, given the long history of the dispute, and given Mr Faloon's undoubtedly extensive understanding of and familiarity with the issues, two months was not an unreasonable period of time in which he could be expected to respond, even to a statement of position of some 57 pages. I note in particular that he had, as he has pointed out to me, filed a tax return on 2 March 2009 where he sets out his income between 1987 and 2007, which he says totals $8,790,852.46, and where the income for the year ending 1 April 2006 is stated to be $750,858.62. The task of turning that return into his own reply under s 89M(5), even if he added detailed substantive narrative, could have been done within two months. Mr Faloon has not shown that a failure by the Commissioner to discuss the position has made it unreasonable for Mr Faloon to reply within the time limit. The issues are clearly understood, and have been litigated in every imaginable way already. [14] The tactical nature of Mr Faloon's general position in relation to his 2006 taxation return is indicated by the fact that his purpose is to show that the actual income upon which he should be assessed amounts over the 20 years to $8,790,852.46. In other words, contrary to the usual position of the tax payer, he is seeking to argue that his taxable income was far greater than that assessed by the Commissioner. The Commissioner noted his taxable income as returned by Mr Faloon at $24,769.11, with a refund to pay of $2,612.27. As proposed, theCommissioner assessed his income at $41,004.15, with tax to pay of $1,157.56. Against this modest background, Mr Faloon sought to prove the colossal income for the 2006 year of $750,858.62, based upon the interest which he believes his family interests should have received on the compensation he should have been given by the government. [15] In this regard the case has some similarities to Faloon v CIR (2005) 22 NZTC 19,653, which concerned a gift statement where Mr Faloon was seeking to argue that his family interests were liable for gift duty. I found then that this indicated that Mr Faloon's position in relation to his tax matters was tactical, and a way of keeping the dispute alive in relation to the compensation that his family interests allegedly never received. He is doing the same here. It seems clear that Mr Faloon is in this litigation, as he has in other litigation, endeavouring to use a tax procedure as a way of arguing his substantive complaints about his family rights in respect of the pipelines and the non-payment of compensation. This is indicated by the fact that in his 2 March 2009 return, which he says sets out part of his position, the income that he asserts has been received starts as a capital sum of $885,007.10 being described as "total claim TCP 11/87". This amount relates to the Town and Country Planning Act proceedings that were extant in 1987, and which have been the background for much of the later litigation. It is to be noted that that claim (TCP 11/87) was a claim not of Mr Faloon, but of Trade Lines Limited, now in liquidation. [16] In Faloon and others v Attorney-General CP310/99, Gendall J struck out a claim where Mr Faloon was seeking to claim compensation personally, when the claim should have been by Trade Lines Limited. There is every indication that Mr Faloon has premised his present position in relation to his 2006 tax return on the same misconception. [17] Mr Faloon shows no hesitation in utilising Court processes by issuing hopeless and misconceived claims, aimed at drawing attention to the injustice that he perceives his family suffered in relation to the compensation issue. The Court of Appeal has commented on his propensity to try to re-litigate against the Crown issues already decided against him in previous proceedings: Faloon v Attorney- General CA255/00, CA280/00 23 July 2001 at [16], Central Equipment CompanyLimited v Commissioner of Inland Revenue (No. 2) at [17]. The most recent judicial general observation in this regard was that of Harrison J in Central Equipment Company Limited v The Commissioner of Inland Revenue (2008) 23 NZTC 21,965 at [12]:Both sets of proceedings have unnecessarily committed the resources of this Court and the Commissioner since their commencement. The documents themselves occupy three ring-binders and at least two large manila correspondence and other files. They tell their own unfortunate tale of Mr Faloon's misunderstanding of legal principles. Mr Faloon may have grievances about the steps taken by the Commissioner against CEL. But he has no right to tie up valuable resources by pursuing applications which have no arguable legal foundation or which attempt by improper means to circumvent final and determinative orders of this Court.[18] In considering this application I must have regard to the provisions of s 89A and the conduct of the parties in this dispute. I take the view that Mr Faloon, in deliberately not filing his statement of position, is taking a tactical position. I can see no sensible basis for him not to have taken any steps to file such a statement of position, save for his wish to continue his long-running dispute and litigation with the Commissioner. On the face of it the whole purpose of this application is not to assist him to go through a process whereby his tax position is properly ascertained, but rather to re-litigate his long-standing dispute with the government about compensation and the pipelines. His failure to file his reply statement of position within two months was unreasonable. [19] I should also record that I see no proper basis for Mrs Faloon, who is not the subject of the statement of position, to have been joined as an applicant. Mr Faloon says that she is referred to in the statement of position, but any reference is only in passing and the Commissioner's statement is clearly not directed at her.Conclusion[20] There is no good reason why an extension of time should be granted to Mr Faloon. It was reasonable for him to have responded within two months. His application for an extension is tactical, not connected to the logistical problems of filing his statement of position within time, but rather because of his wish tocontinue his long-standing dispute as to the payment of compensation for land taken that was owned by Trade Lines Limited. It is his position that is unreasonable.Result[21] The application is dismissed. [22] The applicant has failed, and the respondent is entitled to costs on the application, which I fix on a Category 2B basis, and which should include reasonable travelling expenses for two counsel to be fixed, if necessary, by the Registrar. Asher J