COMMISSIONER OF INLAND REVENUE V THOMPSON HC WN CIV 2005-485-799

COMMISSIONER OF INLAND REVENUE V THOMPSON HC WN CIV 2005-485-799 8 June 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2005-485-799BETWEEN COMMISSIONER OF INLAND REVENUE Appellant AND LEWIS GAIRE HERDMAN THOMPSON Respondent Hearing: 4 April 2007 Appearances: A Beck & G Withers for Appellant G Pearson & M Whyte for Respondent Judgment: 8 June 2007 at 1 pmRESERVED JUDGMENT OF MILLER J[1] Mr Thompson de-registered himself for goods and services tax on 13 November 1999, claiming that his income for the succeeding 12 months would be less than $30,000. The Commissioner re-registered him on 10 August 2000. That disputable decision led to proceedings in the Taxation Review Authority, which held that Mr Thompson was entitled to de-register himself. [2] It is common ground that the Commissioner's substantive appeal from the Authority's decision must be allowed, the Court of Appeal having settled the issue in his favour in Lopas v CIR [2006] 22 NZTC 726. [3] There remains a dispute about a Notice of Response (NOR) issued by the Commissioner under the Tax Administration Act 1994 in response to a Notice of Proposed Adjustment (NOPA) that Mr Thompson issued on 9 October 2000. The dispute concerns service of the NOR. If it was not served within two months, theCommissioner was deemed to have accepted Mr Thompson's NOPA, which dealt with the issue of de-registration. Mr Thompson maintains that it was not served in time. [4] There is no doubt that Mr Thompson did in fact receive the NOR within time. The dispute about service arises because the Commissioner sent it on 29 November 2000 not to the tax agent nominated in Mr Thompson's NOPA but to an accountant engaged to provide specialist tax advice on the question of de-registration. That accountant, Mr Rae of the firm West Yates, had served the NOPA on the Commissioner, and on receiving the Commissioner's NOR, he met Mr Thompson and the latter's solicitor on 30 November 2000 to discuss the NOR. [5] The Taxation Review Authority held that, while this method of service did not comply with s.14 of the Tax Administration Act, that section is not mandatory but facilitative, and that evidence of the meeting of 30 November was admissible to prove that Mr Thompson received the NOR. The Commissioner accordingly won. He appeals even so, saying that the Authority was wrong to hold that Mr Rae was not an agent for purposes of s.14, and that the Authority was wrong to hold that a tax inspector gave false evidence about service. He abandoned before me a further claim that he was entitled to amend the statement of position that he issued following the exchange of the NOPA and NOR. [6] The Commissioner is met with a cross-appeal, in which Mr Thompson contends that the NOR was not served (because compliance with s.14 is mandatory and Mr Rae was not Mr Thompson's agent), that the evidence that Mr Thompson actually received the NOR was not admissible because he received it at a meeting that was the subject of legal professional privilege, and that in any event the evidence was inadequate because it established only that the NOR was discussed at that meeting.Is s.14 of the Tax Administration Act mandatory or facilitative?[7] Where the Commissioner wishes to reject a NOPA, he must, within the prescribed response period, "notify the issuer" that the adjustment is rejected by "issuing" a NOR: s.89G(1). [8] Section 14 deals with notices. At the relevant time it provided:14(1) Giving of noticesAny notice required by this Act or any other Act to be given by the Commissioner to any person may be – (a) Given to the person personally; or (b) Sent to the person by post addressed to the person at the person's usual or last known place of abode or business; or(bb) Sent to the person by post addressed to the person at a place given by the person as an address for communications in writing; or (c) Given personally to any other person authorised to act on behalf of the person; or (d) Sent to that other person by post addressed to that other person at the other person's usual or last known place of abode or business; or (e) Sent to that other person by post addressed to the person or that other person at a place given by that other person as an address for communications in writing.14(2) Notices sent by postAny notice sent by post to any person, or to any other person authorised to act on behalf of that person, shall be deemed to have been received by that person, or that other person, when in the normal course of post it would have been delivered.[9] Also relevant by way of context is s.81, which provides that officers of the Department of Inland Revenue must maintain and aid secrecy of all matters relating to the Inland Revenue Acts. This generally precludes disclosure to persons other than taxpayers or their agents. [10] Mr Pearson contended that the Commissioner failed to comply with s.14; he did not send the NOR to Mr Thompson personally, and Mr Rae was not an agent forpurposes of receipt of notices. On the contrary, the NOPA clearly specified another firm as Mr Thompson's agent for that purpose. Mr Pearson relied upon Hieber v CIR [2002] 20 NZTC 17, 776, in which Baragwanath J observed that when it came to service the Commissioner would be ill-advised to stray from the beaten path of s.14. [11] I accept that service matters in this field; grave consequences can attend a failure to respond to a notice from the Commissioner and time is of the essence under the Tax Administration Act dispute procedures. It is important in those circumstances for the taxpayer to know to whom notices are being sent. There are many cases in which more than one agent is involved; see for example CIR v Fuji Xerox NZ Limited [2002] 20 NZTC 17, 470. However, s.89 requires only that the Commissioner must "notify" the issuer of the NOR. Section 14 is expressed in permissive terms; any notice required to be given by the Commissioner "may" be given by any of the means specified. I do not think that the prescriptive and formal nature of the disputes procedures compels departure from the normal meaning of the word "may". In Hieber Baragwanath J held at [31] that s.14 is purely facilitative. I agree. Unless the Commissioner can rely on the deeming provisions of s.14 relating to postal service or service on an agent, however, the Commissioner must prove that the issuer actually received it within time. For that reason, I agree with Baragwanath J that the Commissioner would be well-advised to comply strictly with s14. [12] Mr Beck argued that the Commissioner did comply in this case, because he sent the NOR by post to the accountant who had served the NOPA, being a person authorised to act on behalf of Mr Thompson. I accept that Mr Rae was Mr Thompson's agent, and held himself out as such by serving the NOPA. But the question posed by s.14 in relation to an agent is whether the person concerned is authorised to act on behalf of the taxpayer. That question is one of fact. A taxpayer may appoint a number of agents in a tax dispute, authorising only one of them to accept service in the interests of ensuring that documents are not overlooked. Had the NOPA been silent about service, the inference that Mr Rae was Mr Thompson's agent for that purpose would have been irresistible. But the coversheet of the NOPA clearly designated another firm as Mr Thompson's agent for service. That being so,the Commissioner could invoke the agency provisions of s14 only by serving the designated agent.Was there admissible evidence that Mr Thompson actually received the NOR at a meeting on 30 November 2000?[13] The Commissioner sought to prove receipt of the NOR by calling Mr Rae over the objections of Mr Pearson, who maintained that the meeting was privileged. The Authority heard the evidence, in what was described as a voir dire, to determine its admissibility. [14] Mr Rae gave evidence that on his copy of the NOR, he had written "cc Gaire" and "Brian Nelson 30 November 00". Brian Nelson was Mr Thompson's solicitor. I infer that it was Mr Rae who arranged for the solicitor to be present. He arranged the meeting to "table" the NOR and he knew that Mr Nelson was Mr Thompson's legal advisor. Mr Rae himself had not made any decision at that stage whether Mr Thompson needed legal advice, but was simply informing him of correspondence from the Department. It was his practice as a tax consultant to seek instructions from the client about obtaining legal advice; that was why Mr Nelson attended the meeting of 30 November. [15] Mr Thompson subsequently engaged another accountant, David Powell, to respond to the NOR. Mr Powell wrote to the Commissioner on 26 January 2000 referring to the NOPA and the department's NOR "issued on 29 November 2000". [16] The Authority held that Mr Rae's evidence raised no question of legal professional privilege. He was called to establish that a meeting was held between Mr Rae, Mr Thompson, and the latter's solicitor. No doubt legal advice was given and taken, but the fact that the NOR was tabled at the meeting did not in itself attract privilege. It was merely a collateral fact: Re Cathcart; ex parte Campbell [1870] 5 Ch App 703. The Authority also referred to the opinions in the House of Lords inThree Rivers District Council v Governor and Company of the Bank of England[2004] UKHL 48, but concluded that the way in which the Commissioner's NOR was dealt with did not arise out of the relationship of confidentiality between lawyerand client, and that it was not brought by Mr Rae to the meeting for the purpose of seeking advice whether or not it was properly served. [17] In this Court, Mr Pearson submitted simply that legal advice privilege extends to the subject matter or topic of any advice, and accordingly attaches to evidence that the NOR was tabled and discussed at the meeting. He was not able to draw my attention to any authorities directly on point. Mr Beck responded that the privilege is confined to confidential communications between solicitor and the client for the purpose of giving or getting advice. Evidence from an accountant that he took the document to a meeting with the solicitor and the client cannot be privileged. [18] This is by no means a typical claim to privilege, for the NOR was not privileged in itself. On the contrary, it is the Commissioner's document, willingly disclosed. Nor did the Commissioner seek to prove the contents of the NOR by calling Mr Rae. Rather, he sought to establish only that it was given to Mr Thompson at the meeting of 30 November. [19] Mr Pearson focused on the privilege attaching to legal advice. That privilege does not extend to communications between a client and a third party, unless the third party is an agent of the client or the lawyer and the communication passes through the agent as an intermediary: Three Rivers District Council v The Governor and Company of the Bank of England (No.6) [2005] 1 AC 610 (HC) at 654 (para [50]). A communication from an employee or an agent acting otherwise than as an intermediary for the purpose of getting legal advice will not attract legal advice privilege: Three Rivers District Council v The Governor and Company o f Bank of England (No.5) [2003] QB 1556 (CA) at 1574. [20] In this case, the tabling or delivery of the NOR was a communication between Mr Rae and Mr Thompson, for Mr Rae's purpose was that of delivering the NOR. He was not engaged as an intermediary to get legal advice. Delivery of the NOR supplied a convenient occasion for legal advice, as Mr Rae recognised, but that was not its purpose. I agree with the Authority that the tabling of the NOR did not attract legal advice privilege in the circumstances.[21] Mr Pearson did not invoke litigation privilege, and I do not think it applies. The privilege applies to confidential communications between client, lawyer, and third party for the dominant purpose of enabling a solicitor to advise or act in litigation. Although litigation was no doubt in contemplation, the communication concerned – the delivery of the NOR – was not confidential. The NOR was not privileged, although what was said about it at the meeting would be. So far as the conduct of anticipated litigation was concerned, the delivery of the NOR therefore was therefore a collateral fact; Brown v Foster (1987) 1 H&N 736; Dwyer v Collins(1852) 7 Ex 639, Brown v Bennett (No.2) [2002] 1 WLR 713, 769. [22] That being so, the evidence of Mr Rae was admissible, and sufficient, to prove timely service of the NOR.The evidence of Mr Lee[23] The Authority was critical of the evidence of a tax inspector, Mr Lee, who gave evidence about the date of posting of the NOR. Nothing turned on this in the end, because the Authority relied not on the date of posting to an authorised agent, but on evidence that Mr Rae delivered the NOR to Mr Thompson. Further, computer experts called by both sides agreed that the NOR was probably printed on 29 November, when the inspector said he posted it. However, the Authority found that Mr Lee's evidence was misleading; he gave the impression that the "properties" window of his computer showed when the document was printed, when it did not. Further, he knew that to be so when he gave his evidence. [24] Although the issue is academic, I heard from Mr Beck because he maintained that in fairness to Mr Lee the record ought to be corrected. However, I am not persuaded that the Authority was wrong. Mr Lee's evidence in chief was that he created this document on 29 November and the window concerned showed the date of creation. Mr Lee did not print or refer to the statistics window in his computer, although he had looked at it. It showed that the 'date printed' field was blank. Thus the sin is one of omission. I add that the Authority did not say in so many words that Mr Lee was untruthful, and accepted that the letter was indeed posted when Mr Leesaid it was. The criticism may have been focused more on a degree of carelessness that the Authority understandably found inexcusable.Decision[25] Counsel agreed that the Commissioner's substantive appeal must be allowed, following Lopas v CIR. The Authority was therefore wrong:(a) To hold that the provisos in s.51 of the Goods and Services Tax Act 1985 are relevant to a proper interpretation of s.52 of the Act. (b) To exclude from the threshold calculations any amounts received from sales of property after deregistration.[26] These conclusions would ordinarily require that the matter be referred back to the Taxation Review Authority. The parties are agreed, however, that the substantive aspects of the appeal should be resolved with the challenge to assessments presently before this Court in Nelson: Thompson v CIR (CIV 2004-442- 571). There will an order accordingly. [27] With respect to the other issues, I uphold the Authority's finding that the NOR was served on Mr Thompson within time. The appeal is allowed to that extent, and the cross-appeal is dismissed. [28] The Commissioner has succeeded on the central issue in this appeal, and will have costs in this Court on a 2B basis with provision for one counsel. Memoranda may be filed if costs cannot be agreed."In accordance with r 540(4) I direct the Registrar to endorse this judgment with a delivery time of 1.00 pm on the 8 th day of June 2007."F Miller JSolicitors:Crown Law Office, Wellington for Appellant Duncan Cotterill, Wellington for Respondent