CIR V SKUDDER HC AK CIV 2007-404-007642

CIR V SKUDDER HC AK CIV 2007-404-007642 27 February 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-007642UNDER Part IVA of the High Court Rules and Section 138N of the Tax Administration Act 1994 BETWEEN COMMISSIONER OF INLAND REVENUE Plaintiff AND JOSEPH COLIN SKUDDER Defendant Hearing: 25 February 2008 Appearances: R J Willox & D P Weaver for Plaintiff G D Clews for Defendant Judgment: 27 February 2008JUDGMENT OF KEANE JThis judgment was delivered by Justice Keane on 27 February 2008 at 5pm pursuant to Rule540(4) of the High Court Rules.Registrar/ Deputy Registrar Date:Solicitors: Crown Solicitor, Auckland Wright Wiseman Law, Auckland[1] Joseph Skudder, a property developer, has been assessed by the Commissioner of Inland Revenue to be liable for the years 1994 – 2001 to pay core tax, both income tax and goods and services tax, totalling $695,000. Interest and penalties have since taken that assessed liability to in excess of $4M. He has a challenge extant before the Taxation Review Authority. The Commissioner of Inland Revenue applies to have the challenge transferred to this Court for hearing. [2] The Commissioner accepts that the sum in issue may not be of the highest magnitude. The challenge, he accepts, is of moderate complexity. He identifies one issue of law he considers significant: as to the status of amended assessments issued after Mr Skudder discontinued his challenge before the Taxation Review Authority, only to resume it with leave. His principal ground is that this Court is better able than the Authority to see the challenge to a prompt conclusion. [3] Mr Skudder, the Commissioner contends, conducted his business affairs during the years assessed as if he had no liability to tax; and while delaying before the Authority re-ordered his affairs. This Court, the Commissioner contends, can bring to the challenge, in a way that the Taxation Review Authority cannot, the discipline now called for. The Commissioner has also, as he says, an action in debt in this Court relying on the assessments now the subject of challenge. Only this Court, the Commissioner argues, can manage and resolve the two proceedings, the one in relation to the other. [4] Mr Skudder contends that any delay before the Taxation Review Authority was not of his making and that he did not authorise that challenge ever to be discontinued. That is the forum, he says, in which he elected to bring his challenge. That is where he wishes to prosecute it. He claims to be in a position to do so more promptly there than before this Court.Context[5] In February 1998 the Commissioner commenced an investigation into Mr Skudder's taxation affairs. In July 2001 Mr Skudder was force-registered for GST and in November 2001 was issued with default income tax and GST assessments forthe years 1990 – 2001. In February 2002, at a voluntary interview, Mr Skudder's tax agent offered to prepare and file the returns called for. These were furnished by June 2002. In July 2004 the Commissioner reassessed the GST returns for the years 1994 – 2001 and those as to income tax between 1995 – 2000. Mr Skudder served a notice of proposed adjustment in September 2004 and in October 2004 the Commissioner issued a notice of response. In December 2004 Mr Skudder, his tax agent still acting, brought his challenge before the Taxation Review Authority. [6] In a telephone conference on 6 July 2005 the Authority, Judge P F Barber, directed Mr Skudder to file and serve by October 2005 a verified list of documents, according to the Commissioner the right to inspect in November 2005. The documents supplied in October were not verified. The Commissioner thought those supplied incomplete and asked for more by January 2006. In a second telephone conference in November 2005 the Commissioner asked for a five day hearing. Judge Barber gave a fixture for 24 July 2006. In April 2006 Mr Skudder's tax agent said that he would discontinue his challenge if he and the Commissioner could agree his liability. In May 2006 the Commissioner responded that he was not prepared to see the case withdrawn until liability was agreed. [7] On 20 June 2006, at a further case conference, the Commissioner applied to have the challenge dismissed because Mr Skudder had failed to comply with the various directions given. When the tax agent again intimated that the challenge would be discontinued if liability could be agreed, however, the Commissioner proved sympathetic. The notice of discontinuance was filed on 6 July 2006. In August 2006 the Commissioner made the adjusted assessments still in place. [8] On 6 October 2006 Mr Skudder applied to the Taxation Review Authority to set aside his notice of discontinuance. That was opposed by the Commissioner. After affidavits and submissions were exchanged Judge Barber, in a ruling given on 6 November 2007, reinstated the challenge. By then the Commissioner had been pursuing Mr Skudder in debt for in excess of a year, on the footing that the tax assessed was correct and indisputable: s 109 Tax Administration Act 1994. That footing immediately ceased to be secure. But the action in debt remains, as do interim orders in favour of the Commissioner. The position is this.[9] The Commissioner brought the debt action in this Court in August 2006 soon after the notice of discontinuance was filed. On 1 September 2006 he obtained a pre-judgment charging order and a Mareva injunction, both of which have recently been superseded. On 8 October 2007, after the Commissioner filed an amended statement of claim, Courtney J granted a fresh pre-judgment charging order and Mareva injunction, each this time interim in character. Each, moreover, was made assuming that Mr Skudder's liability to tax was $4M. Now that assessment is in limbo. Whether the interim injunction and order ought to be sustained is to be decided at a fixture on 14 April 2008. [10] On 6 December 2007 the Commissioner applied for an order transferring the challenge proceedings to this Court on the bases I outlined at the outset. That application requires leave to be brought and as to that there is no issue. Leave is not opposed. The issue is as to transfer.Discretion to transfer[11] This Court is given the ability by s 138N(2)(a)(ii) of the Tax Administration Act 1994 to transfer to this Court a challenge brought in the Taxation Review Authority; and in this way:If a disputant commences a challenge in a Taxation Review Authority,— (a) The Commissioner may apply to— (ii) The High Court to have the challenge transferred to the High Court.[12] This discretion is general and the principles that apply are to be garnered from the instances in which it has been exercised. In Commissioner of Inland Revenue v Deepsea Sea Foods (No 1) Ltd & Ors (2004) 21 NZTC 18,469, 18,473, [18]; Fisher J identified six such principles and I gratefully adopt his analysis:(a) There is no legislative presumption that at first instance taxation disputes should normally be dealt with in the TRA.(b) However, because the taxpayer has the initial choice of forum, the onus is on the Commissioner to show why proceedings commenced in the TRA should be transferred into the High Court. (c) Because the High Court is the Court of first instance jurisdiction for major and significant litigation, transfer to the High Court may be justified by the magnitude of the tax in dispute, the general or public importance of the matter, or its extraordinary complexity or difficulty. (d) There may be added reason for hearing the matter in the High Court where the matter in dispute is likely to arise again in future assessments, the challenge involves significant legal issues of precedent, or the facts of the challenge are in dispute. (e) If an appeal seems likely, that may favour a High Court proceeding given the additional appeal level if the proceedings commence in the TRA. (f) Other reasons favouring the High Court as the appropriate forum will include the fact that there are already proceedings in the High Court which overlap with the assessment challenges and/or allegations of bias, bad faith, abuse of power, or lack of integrity, on the part of Departmental officers.[13] The exercise of the discretion will be straight forward where the issues extend beyond the case and the decision to be made will be a general precedent, where the issues of fact and law have unusual complexity and where the amount at stake is such that it can be expected that, whatever the result, any rights of appeal will be exercised: CIR v Erris Promotions and Ors ; Wilson & Black Associates Ltd v CIR; CIR v West Coast Developments Ltd (2002) 20 NZTC 17,977; CIR v A Taxpayer (2003) 21 NZTC 18,001, O'Regan J. [14] Even where the case is not of such magnitude, complexity or significance, other factors can come into play. The discretion is likely to be exercised, for instance, where the integrity of Departmental officers is in issue – where there are serious allegations of bias, bad faith and abuse of power: CIR v McIlraith (2003) 21 NZTC 18,112, Randerson J. Even an implicit criticism of the conduct of Departmental officers can be a factor pointing to transfer: Deepsea Seafoods, supra. And there are two other instances that are especially relevant. [15] One is where there is an existing proceeding in this Court that is linked to the challenge and coincides with it wholly or partly in the issues that it raises: McIlraith.Then there can be sense in hearing the two together, or consecutively, in this Court. A coincident application for judicial review is the usual likelihood. An action, in debt, however, is not and has not been seen to be in that category. It can only be pursued once the assessment challenged has been vindicated in whole or part, all appeals having been exhausted: Allen v Commissioner of Inland Revenue (2004) 21 NZTC 18,718, CA, William Young J, para [81]. [16] The other is where the history of the case suggests, as Fisher J said inDeepsea Foods, para [20], that 'it would be useful for the parties to have access to High Court case management and interlocutory procedures.' But the circumstances would need to be singular. O'Regan J in A Taxpayer, 18,008, para [45](f), though he ordered transfer, was confident that the Taxation Review Authority is well capable of controlling and resolving a hard fought case; and that its rules offer no impediment. In both respects I agree. [17] Ultimately, the Commissioner must show positively why the challenge ought, exceptionally, to be transferred for hearing to this Court. In this case he is not able to do so.Conclusion[18] The issues of fact and law that will arise are quite usual in character and the focus will be on the facts. There is no point of law that is novel; nor any where the decision called for, in whichever forum it is made, is likely to have any value as a precedent. The only issue identified as possibly novel is as to the status of the amended assessments, deemed correct and indisputable after the discontinuance, but now subject to resumed challenge. Any such issue will be subsumed in the decision made resolving the challenge. That constitutes a re-assessment superseding the challenged assessments: s 138P Tax Administration Act 1994. [19] The magnitude of the tax liability challenged, though significant, especially for an individual taxpayer, is not unusual. The core tax, $695,000, even inflated by penalties and interest to $4M, does not compare for instance, with that in issue inErris, $226M: (2003) 21 NZTC 18,330, Ronald Young J. The level of thecomplexity of the case is also unremarkable. The Commissioner's counsel considers that the challenge could be resolved well within a week, perhaps within three days. Such cases as these are routine to the Taxation Review Authority. [20] The Commissioner's principal ground, that this Court would be more stringent in managing the case to hearing and subject the evidence admissible to greater discipline does not, I consider, stand scrutiny. [21] The Commissioner is concerned that any pre-trial issues now to be resolved before the Authority may be by exercise of general discretion, not as in this Court subject to the discipline of rules. The Authority, however, can have recourse to the District Courts Rules 1992 and there is no reason why, if they apply, the Commissioner should not call them in aid, if only as points of reference. Moreover, on the two issues that concern the Commissioner prior to hearing, the Authority has ample authority to control its process, whether specific or general does not matter. [22] The Commissioner's first concern is that, despite the exchange of notices of proposed adjustment and response, the issues are still not identified definitively and Mr Skudder's position remains undeclared. If that is so, the Authority, I am confident, would wish before the hearing, in the interests of efficiency and to avoid surprise, to settle both. Also, if during the hearing the taxpayer's grounds for challenge were to shift in nature or scope, the Authority could rule out any such shift or allow it on a basis that protected the Commissioner from surprise. [23] The Commissioner's second concern is as to discovery. He wishes to be assured that discovery will be complete and there will be no surprise. There has already been discovery but that does not preclude more if the Authority is satisfied there is cause. Equally, if at the hearing Mr Skudder were to rely on any document not discovered, the Authority could rule it out or accord it little weight or allow it in, ensuring that the Commissioner was not left at a disadvantage. [24] Finally, the Commissioner has one further concern once the hearing commences. He wishes the evidence given to be subject to the discipline of the Evidence Act 2006, or to the extent that it does not apply the common law. TheAuthority has been given purposely, however, a wider ability to receive evidence: s 17 Taxation Review Authorities Act 1994. And though that discretion is wide it is to be exercised judicially. The 2006 Act and the common law could well supply relevant points of reference. [25] The Commissioner's argument under this head comes down to this. This Court has abilities that the TRA does not have and is subject to disciplines that the TRA is not under, and is therefore to be preferred. That argument cannot begin to be sustained. Parliament has created the Taxation Review Authority as the normal, if not presumptive, forum for taxpayer challenge and has accorded to the taxpayer a choice whether to challenge in that forum or in this Court. There must be some concrete reason under this head before this Court will order transfer. The Commissioner contends for two. [26] First, the Commissioner points to Mr Skudder's conduct of business over ten years as if he had no liability to tax. But even if Mr Skudder were as derelict in his duty as the Commissioner says, that cannot be enough. Eventually Mr Skudder did file returns and the Commissioner has exercised his power of assessment. All that is now a matter of history except insofar as it goes to whether the assessments now challenged are correct. [27] Then, the Commissioner says, Mr Skudder has delayed deliberately before the Taxation Review Authority and used the opportunity to re-order his affairs. In re-instating the challenge, however, Judge Barber found that Mr Skudder had not cynically delayed. He was confident that, now that Mr Skudder's case is in the hands of counsel, the challenge can be expected to be prosecuted promptly and responsibly. That is certainly as it appears to me. [28] In the end the Commissioner's case for transfer assumes that there is advantage in linking in this Court the challenge and the debt action that relies on the assessments challenged. But, there too, the Commissioner is in difficulty. In contrast to a coincident application for judicial review brought in this Court going to the same issues, an action in debt can only be pursued once the operative assessment is beyond any further challenge. The debt action will have to be adjourned, regardlessof the forum in which the challenge proceeds, until it is determined and any appeal right exhausted. [29] There is indeed a contrary consideration. In the debt action the Commissioner presently has the benefit of the interim pre-judgment charging order and Mareva injunction and this Court on 14 April 2008 is to be asked to determine whether they should be made final or set aside. One factor that will weigh is that neither is any longer founded on an incontestable assessment; and when the challenge to the assessments is to be heard may well be a significant factor. There, paradoxically, in holding to his choice of forum, Mr Skudder may offer the Commissioner some advantage. [30] Assuming that the fixture required for the challenge is of the order of five days, this Court cannot assist with a fixture until February next year. The Taxation Review Authority, however, assuming that each side can marshal their case, can offer a five day fixture commencing 26 May 2008. Even allowing for an appeal and because the case is largely factual such an appeal is unlikely, or is likely to be confined in scope, the Taxation Review Authority is the forum within which the challenge can most promptly be advanced. [31] The Commissioner will have leave to apply for transfer, unopposed, but the application for transfer itself is declined. Mr Skudder is entitled to costs, as I should have thought at scale 2B, and disbursements as fixed. Mr Skudder's memorandum is to be filed and served within ten working days of this decision and the Commissioner's reply within the succeeding ten working days. _____________ P.J. Keane J