FALOON v INLAND REVENUE [2013] NZHC 2643

FALOON v INLAND REVENUE [2013] NZHC 2643 [10 October 2013]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2013-485-783[2013] NZHC 2643UNDER the Tax Administration Act 1994IN THE MATTER OF an application to the Court undersection 89M(11) of the Act for more timewithin which to reply to theCommissioner's Statement of Positionissued 1 May 2013BETWEEN CLARENCE JOHN FALOONApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 10 October 2013Counsel: Applicant in PersonA Goosen and M Stapleton for RespondentJudgment: 10 October 2013ORAL JUDGMENT OF RONALD YOUNG JIntroduction[1] Mr Faloon is in dispute with the Commissioner of Inland Revenue. He has filed an interlocutory application for leave to bring an Originating Application1 in this Court pursuant to s 89M(11) of the Tax Administration Act 1994 (the Act) formore time to reply to a Commissioner's Statement of Position (SOP) under the tax dispute process.1 High Court Rules, r 19.5.[2] The application is opposed by the Commissioner because she says on the merits even if leave were granted the application for more time to reply cannot possibly succeed. Section 89M(11) has no application to Mr Faloon's tax disputewith Inland Revenue and so leave to bring these proceedings by Originating Application should be refused, the Commissioner says.[3] In addition to Mr Faloon's application to bring an Originating Application, he has also filed an application to set aside the notice of opposition filed by the Commissioner and an affidavit of Ms Miranda Cooke filed in support of theCommissioner's opposition. I can deal immediately with the application relating to these two applications.[4] Rule 5.44 of the High Court Rules requires a party when filing its first document in any set of proceedings to include a memorandum setting out the name of the solicitor acting, the address for service along with other relevant matters.[5] The original notice of opposition by the Commissioner filed on 12 June 2013 does not comply with that Rule but when a further notice was filed on 12 July by the Commissioner that was corrected. The technical failure is of no prejudice to Mr Faloon. The non compliance, therefore, is of no lasting concern in these proceedings. The notice of opposition is, therefore, amended to provide for compliance.[6] Mr Faloon alleges that there are three statements in Ms Cooke's affidavitwhich are inadmissible under the Evidence Act 2006. Ms Cooke has referred to background matters in respect of Mr Faloon's affairs. The statements are notinadmissible hearsay because they are not adduced to prove the truth of them. The application to set aside the affidavit is, therefore, dismissed.Application for leave to bring Originating Application[7] I now turn, therefore, to the application for leave to bring the Originating Application by Mr Faloon.[8] The Commissioner's position can be simply summarised. Part IVA of the Tax Administration Act allows both a taxpayer and a Commissioner to institute a dispute procedure. Who does so will depend upon the particular circumstances. A Commissioner can do so by issuing a NOPA2 or the taxpayer may initiate the dispute by him or herself issuing a NOPA.3 In this case Mr Faloon accepts he began the dispute process by issuing a NOPA.[9] Section 89M(11) provides as follows:89M Disclosure noticesThe 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.[10] This is the subsection which is the substance behind Mr Faloon's applicationto bring an Originating Application to allow him more time to reply to theCommissioner's statement of position (SOP). Ordinarily the Originating Application procedure would be suited to a s 89M(11) application.[11] The difficulty is, as the Commissioner points out, subsection (11) only applies if the dispute procedure has been instituted by the Commissioner. Where the dispute procedure is initiated by the Commissioner she issues a notice of proposed adjustment (NOPA). The taxpayer then issues a notice of reply (NOR). The Commissioner in turn issues a disclosure notice and summary of position (SOP) and the taxpayer must then respond by his or her own summary of position (SOP). That is the position anticipated in s 89M(11). There, the disputant may apply to the High Court for more time within which to reply to the Commissioner's statement ofposition (SOP) in certain circumstances.2 Sections 89B and 89C.3 Section 89D.[12] Where a taxpayer issues a notice of proposed adjustment (NOPA) then the Commissioner responds by a NOR. The taxpayer must reject the notice of response in writing. The Commissioner then issues a disclosure notice but is not obliged to issue a summary of position (SOP) at that time. However, after the disclosure notice the taxpayer must then issue his or her own summary of position (SOP). The Commissioner then issues its own SOP and that is the end of the statutory process. There is no right of reply to the Commissioner's statement of position (SOP) where, therefore, there is a taxpayer initiated dispute.4 And, therefore, sub (11) could not apply in such circumstances because the disputant has no right to reply to theCommissioner's statement of position (SOP).[13] Mr Faloon complained that the Commissioner's statement of position (SOP) was not truly a statement of position (SOP). That is a matter for Mr Faloon to raise if and when, this matter gets to the adjudication stage. But it is not a matter that I am in a position to, nor should rule upon. Nor is it relevant to this case.[14] Section 89(11) is part of a statutory process. It only allows a disputant more time where there is reply to a Commissioner's statement of position (SOP) is required. In Mr Faloon's tax dispute no reply to the Commissioner's statement ofposition (SOP) is required or statutorily provided. Thus, ss (11) which allows for further time to reply to a Commissioner's SOP has no application to Mr Faloon's taxdispute.[15] I note s 89(13) provides that a Commissioner and a disputant may agree to additional information being added at any time to either of their statements of position.[16] I am satisfied, therefore, that the Commissioner's position is correct and thatMr Faloon is not entitled to reply to the summary of position from the Commissioner given that Mr Faloon has initiated the notice of proposed adjustment (NOPA) process. Therefore, it would be a nonsense to consider any application under s 89M(11) which seeks an extension of time given there was no right of reply to theCommissioner's statement.4 See s 89M(6)(BA).[17] In those circumstances there can be no justification for allowing Mr Faloon to be given leave to file the Originating Application.[18] For the reasons given, Mr Faloon's application will be dismissed.Costs[19] In terms of costs the Commissioner, if she seeks costs, should file amemorandum within 14 days from today's date. Mr Faloon a further 14 days within which to respond._____________________________Ronald Young JSolicitors:Crown Law, Wellington