COMMISSIONER OF INLAND REVENUE V CULLEN [2017] NZCA 448

COMMISSIONER OF INLAND REVENUE V CULLEN [2017] NZCA 448 [12 October 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA239/2017[2017] NZCA 448BETWEEN COMMISSIONER OF INLANDREVENUEAppellantAND RHYS MICHAEL CULLENRespondentHearing: 27 September 2017Court: Harrison, French and Asher JJCounsel: M Deligiannis and M J Bryant for AppellantRespondent in personJudgment: 12 October 2017 at 10 amJUDGMENT OF THE COURTA The appeal is allowed.B The proceeding filed by the respondent in the High Court is struck out.C There is no order for costs.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] This appeal from a judgment of Fitzgerald J in the High Court raises this issue: is one entity entitled to file a return under the Goods and Services Tax Act 1985 (the GST Act) in the name of and using the registration number of another, and non-existent, legal entity?1 A related issue arises about the standing of that entity to file a proceeding in the High Court for and on behalf of the legal entity after it came into existence but was in liquidation.Background[2] The relevant background facts are uncontested. On 10 June 2016 the respondent, Rhys Cullen, filed a GST return with the appellant, the Commissioner of Inland Revenue. It was in the name of Tamaki Rugby League Inc (the Society) and used the GST number 94878055 earlier allocated by the Commissioner to the Society. The return claimed a refund of GST of $14,951.24 for taxable activities carried out during the period from 1 April 2016 to 31 May 2016. The Commissioner received the return on 22 June 2016.[3] However, the Society did not exist either on the date the return was completed or, more particularly, during the preceding two-month period. The Society had a chequered history. Its predecessor was the Tamaki Rugby League Club (the Club), an apparently unincorporated society which fielded a team in the Auckland senior rugby league competition. On 24 July 2006, at about the time the team ceased to exist, the Society was registered as an incorporated body under the Incorporated Societies Act 1908. Mr Cullen advises it has since operated as an amateur sporting academy, providing mentoring and support for aspiring professional players who assist in fundraising efforts through scrap-metal collections. The identity of the party for which the scrap metal was collected was not in evidence.1 Cullen v Commissioner of Inland Revenue [2017] NZHC 578, (2017) 28 NZTC 23-007 [Strike-out determination].[4] These relevant events followed:(a) In October 2008 the Society was struck of and then reinstated.(b) In August 2010 the Society was placed in liquidation for failing to pay a debt of about $8,000 to Air Liquide (NZ) Ltd. That company is an industrial gas supplier. It was not apparent to us how it became the principal creditor of a sporting academy. The Official Assignee was appointed liquidator. The liquidation came to an end on 14 January2011 following the liquidator's registration of a final report.(c) In November 2012 the Society was struck off again. It remained in that state until 17 June 2016 when Associate Judge Bell made an order for its restoration to the register.2 The Commissioner had carried outan investigation into the Society's tax affairs. She determined that aGST refund was due but did not know to whom the money should be paid given that the Society had been struck off for some years. Mr Cullen, acting in his capacity as chairman of the Club and former Society, applied for restoration. The Associate Judge declined to make the restoration order retrospective. It took effect from the date of the order.(d) The Associate Judge also made an order on Mr Cullen's application setting aside the Official Assignee's final report as liquidator in 2011.3As a result, given that the Society was now back in existence, the Official Assignee resumed office as liquidator. The purpose of this order was to enable the Official Assignee to receive the GST refunddue from the Commissioner and settle Air Liquide's outstandingclaim. Mr Cullen also applied for an order terminating the liquidation. The Associate Judge adjourned his application. We are unaware of its fate.2 Cullen v Registrar of Incorporated Societies HC Auckland CIV-2016-404-1103, 17 June 2016 at [6].3 At [9].[5] So, in summary, the Society did not exist as a statutorily incorporated body or during the period of alleged taxable activity between 1 April and 30 May 2016 or on 10 June 2016 when the GST return was completed. The Society did not resume its legal existence until a week after the return was filed. Even then, it was immediately placed in liquidation. Mr Cullen does not dispute that he requires the OfficialAssignee's consent to bring any proceeding for and on behalf of the Society in theHigh Court.[6] In August 2016 the Commissioner issued a notice of assessment to the Society reducing the refund due from $14,951.24 to $101.24. Mr Cullen respondedby issuing a notice of proposed adjustment (NOPA) in the Society's name.The Commissioner did not issue a notice of response (NOR).High Court[7] In September 2016 Mr Cullen issued this proceeding against the Commissioner. The intituling described him as acting in his purported capacity as chairman of the Society. He sought declarations that the GST return he filed wasvalid and the Commissioner's assessment was invalid.[8] Later that month, after receiving confirmation that the Official Assignee had not consented to Mr Cullen bringing the proceeding, the Commissioner applied to strike out his claim on the grounds that:(a) Mr Cullen had no standing to bring the proceeding;(b) the proceeding did not disclose a reasonably arguable cause of action because the Society did not exist during the period of alleged taxable activity;(c) the Commissioner's assessment was correct in all respects; and(d) the originating application was an abuse of process.Mr Cullen opposed the application.[9] The Judge found against the Commissioner on all four grounds. It will only be necessary for us to address her reasoning on the first two. The third and fourth were diversionary from the real issue and although Ms Deligiannis devoted some of her written synopsis to the third we do not intend to consider it.Decision[10] There is no dispute about the legal principles applying on an appeal against a refusal to strike out a proceeding. The Commissioner must establish that Fitzgerald J erred in finding Mr Cullen's claim is clearly tenable.4[11] Ms Deligiannis' argument is encapsulated in a brief submission that the Judge asked herself the wrong question. The Judge asked: "to whom [does] the [GST] Return relate?";5 and "who is 'the taxpayer' for the purposes of the Return?"6Ms Deligiannis submits that the inquiry should have been confined to whether the Society was the taxpayer for the purposes of the return; and if the Judge had asked this question, only one answer was available. The Judge had correctly found the Society was registered as the taxpayer and did not exist when the taxable activity was carried out. It had to follow that no other entity could file a GST return in theSociety's name.[12] We agree with Ms Deligiannis for reasons which we can express shortly. Fitzgerald J approached the issue by finding that the taxable activity was arguablycarried out by an entity other than the Society. She accepted Mr Cullen's submissionthat that other entity must have been the Club which, she understood, continued to operate during the periods when the Society ceased to exist. The Judge pointed tothe Commissioner's acceptance of returns filed in the Society's name and paymentsof refunds for earlier periods while it was struck off.7 Accordingly, it was arguable the return related to taxable activities for the Club, an unincorporated body, not the Society.4 Strike-out determination, above n 1, at [29].5 At [25].6 At [69].7 At [68].[13] However, that is not the issue. Section 51 of the GST Act imposes a liabilityon every "person" who carries out a taxable activity to be registered for GSTpurposes. By s 16(1) a registered person must provide a return setting out the amount of tax payable for a taxable period. The Commissioner records the name of the registered person and allocates a GST registration number. It is not in dispute that the Society was the registered person for the purposes of s 16(1). It must follow that the Society was the only legal entity entitled to file a return and claim a refund for a taxable activity using that relevant number.[14] Fitzgerald J held that, in the absence of reference to any statutory provisions or authorities which would preclude the GST return relating to the Club, it was atleast arguable that "the taxpayer" to whom the GST return relates was the Club.8We cannot agree with the Judge's reasoning. It is irrelevant that the taxable activityfor which the return was completed was or might have been carried out by another entity or entities using the same or a similar name and said to be constituted by the same or similar members. Unless the activity was carried out by the registered person — that is, the particular legal entity — the statutory rights and obligations do not apply. Another party, whether separately constituted by law or not, cannot usethe registered person's details to claim a refund. As Ms Deligiannis submits, the appropriate remedy for that separate entity is to register for GST purposes in its own right. But it cannot adopt the registration details of a third party to claim a GST refund. To allow such uncertainty in taxpayer identity would undermine theCommissioner's statutory obligation to use her best endeavours to protect the integrity of the tax system.9[15] We are satisfied the Judge erred in assuming that an arguable case was raised because the underlying taxable activity was carried out by an entity associated with the Society. The Club is not and was never the Society. The Club, if it existed, was always an unincorporated body without formal legal status. We add that qualification about existence because there was no evidence the Club existed in any formal sense or carried out a taxable activity in its own right. Mr Cullen advised thathe and Pamela Wilcox were the Club's only officers. He says he is chairman and8 At [67] and [69].9 Tax Administration Act 1994, s 6.Ms Wilcox is the secretary. He "supposes" that she is also the treasurer. He admitsthere is no committee. It is unclear to us how the Club can operate in the absence of a committee elected by its membership and there was no evidence that Mr Cullen and Ms Wilcox were in fact elected to their offices by that same membership.[16] Ms Deligiannis accepts that the Commissioner has acted incorrectly in accepting GST returns filed by Mr Cullen in the Society's name for periods beforeMay 2016. But the Commissioner cannot be estopped by her previous errors of law from performing her statutory obligations to apply the revenue statutes correctly.10[17] We add that, even if we are wrong on the primary issue, Ms Deligiannis is correct that the proceeding must be struck out on another ground. Mr Cullen has no standing or authority to issue the proceeding on behalf of the Society.11 With effect from the commencement of the liquidation on 17 June 2016, the Official Assigneehad control and custody of the Society's assets. To the extent that any proceeding brought for the purpose of establishing the Society's right to the GST refund was achose in action which constituted an asset, only the liquidator or somebody actingwith the liquidator's consent could issue this proceeding. It is common ground thatthe Official Assignee has never consented to Mr Cullen issuing this proceeding onthe Society's behalf.[18] Fitzgerald J's finding that Mr Cullen arguably had standing was based upon her preceding finding that the proceeding was brought on behalf of the Club,12 a separate and unincorporated collective from the Society with no distinct legal persona. Given our primary finding that only the Society was entitled to lodge a return, we are satisfied that Mr Cullen lacked the necessary status to bring any related proceeding. The requirement for certainty in taxpayer identity assumes greater weight where the affairs of the Society are subject to the procedural rigour of pts 16 and 17 of the Companies Act 1993 which govern its liquidation.1310 Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] 3 NZLR 303 at [70] citing Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655 (CA) at 661.11 Companies Act 1993, ss 248(1)(c) and 260.12 Strike-out determination, above n 1, at [65].13 Incorporated Societies Act 1908, s 26.[19] It follows that the proceeding issued by Mr Cullen discloses no arguable cause of action and must be struck out.Result[20] The appeal is allowed.[21] The proceeding filed in the High Court is struck out.[22] The Commissioner does not seek costs. There will be no order for costs.Solicitors:Crown Law Office, Wellington for Appellant