CORPORATE ENTERPRISES LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 2915 [5 November 2020]

CORPORATE ENTERPRISES LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 2915[5 November 2020]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2020-485-333[2020] NZHC 2915IN THE MATTER OF an appeal under s 26A of the TaxationReview Authorities Act 1994BETWEEN CORPORATE ENTERPRISES LIMITEDAppellantAND COMMISSIONER OF INLANDREVENUERespondentCIV-2020-485-334IN THE MATTER OF an appeal under s 26A of the TaxationReview Authorities Act 1994BETWEEN PLIM BUILDERS LIMITEDAppellantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 9 October 2020Counsel: A C Beck for appellantsM Deligiannis and K I S Naik-Leong for respondentJudgment: 5 November 2020RESERVED JUDGMENT OF DOBSON JThe preliminary issue[1] This judgment determines a discrete challenge brought by the respondent (theCommissioner) disputing the entitlement of the appellants to bring their appeals to thisCourt from a decision of the Taxation Review Authority (the TRA).[2] The decision in question upheld a determination by the Commissioner thatthere were no exceptional circumstances for the late filing of notices of proposedadjustment (NOPA) and that the NOPAs in question were not in any event filed assoon as reasonably practicable.1[3] The appeals have been brought under s 26A of the Taxation Review AuthoritiesAct 1994 (the TRAA). The appellants seek reversal of the TRA's decision, with theoutcome being that the Commissioner would be required to accept their belatedNOPAs, thereby giving them standing to advance their substantive disputes with theCommissioner.[4] Those disputes relate to belated claims made by the appellants for refunds ofgoods and services tax (GST) which they contend were wrongly paid in GST periods:• for Corporate Enterprises Limited – between February 1988 and February1995; and• for Plim Builders Limited – between September 1990 and September 1994.[5] The NOPAs seeking the GST refunds were filed on 20 December 2018. Bothappellants had participated in what became known as Russell template tax avoidancearrangements,2 and the claimed entitlement to GST refunds arguably arose out of theCommissioner's recharacterisation of taxable activities undertaken by the appellants.1 Corporate Enterprises Ltd and Plim Builders Ltd v Commissioner of Inland Revenue [2020]NZTRA 1.2 As designed by Mr J G Russell, and the subject of numerous litigated disputes between taxpayersand the Commissioner. The template is described by Judge Sinclair in Corporate Enterprises Ltdand Plim Builders Ltd v Commissioner of Inland Revenue, above n 1, at [21].[6] Under the former regime of procedures applying to taxpayer challenges to theCommissioner's decisions, and under the current procedure under the TaxAdministration Act 1994 (the TAA) for engaging in the disputes procedure, time limitsare stipulated with limited prospects for avoiding the consequences ofnon-compliance. In the case of the time for filing a NOPA, the previous strictrequirement for compliance with the time limit has been ameliorated by the provisionsin s 89K of the TAA, the first version of which appeared in that Act in October 1996.Subsection (1) empowers the Commissioner to treat actions, including the filing of aNOPA, that were taken outside the statutory time limit as if they were filed in a timelyway where the Commissioner considers an exceptional circumstance has prevented adisputant from taking the step within the statutory time limit. There is a definition of"exceptional circumstance" within s 89K and in addition to having to make out sucha circumstance, a disputant is required to have filed the late notice as soon asreasonably practicable.[7] Section 89K(4) of the TAA applied in this case. That provides:89K Late actions deemed to occur within response period(4) If the Commissioner decides to not issue a notice in favour of thedisputant under subsection (1), the Commissioner must issue a noticeof that decision (the refusal notice) within 1 month of the disputantsending the relevant notice or statement under subsection (1)(b).[8] The Commissioner issued refusal notices to the appellants on 24 and25 January 2019, refusing to treat their late NOPAs as if given within the requisitetime limits. That brought s 89K(6) into play, which provides that:(6) The disputant may challenge the Commissioner's refusal notice byfiling proceedings, in accordance with the Taxation ReviewAuthorities Regulations 1998, within 2 months of the notice's issue.For the purposes of this subsection, the Taxation Review AuthoritiesAct 1994, and the Taxation Review Authorities Regulations 1998, therefusal notice is treated as a notice of disputable decision and thechallenge is treated as a challenge under Part 8A.[9] The appellants filed proceedings in the TRA on 25 March 2019. On 5 June2020 the TRA dismissed their challenges, finding in a fully reasoned judgment thatexceptional circumstances were not made out. In any event, the TRA found that thelate NOPAs had not been filed as soon as reasonably practicable.[10] On 2 July 2020, the appellants filed a notice of appeal from the TRA decisionin this Court. The Commissioner has taken the preliminary point that there is no rightof appeal and the question as to whether jurisdiction does exist has been argued as aseparate question.Competing contentions on scope of appeal rightThe Commissioner[11] Section 89K of the TAA provides for the limited circumstances in which ataxpayer can rely on a NOPA filed out of time to advance a dispute with theCommissioner. Before August 2011, a disputant wishing to challenge theCommissioner's refusal to accept a late filed NOPA could only do so by seekingjudicial review of the Commissioner's decision.[12] Section 89K(6) was introduced in August 2011 to provide disputants with aright to challenge a refusal by the Commissioner by filing proceedings in the TRA.3Because that section is in Pt 4A of the TAA, and proceedings before the TRA aredefined as challenge proceedings which come under Pt 8A of the TAA, s 89K(6)included the stipulation that for the purposes of that subsection, as well as the TRAAand the TRA regulations, the Commissioner's refusal notice was to be treated as anotice of disputable decision and the challenge to it "is treated as a challenge underPt 8A".4[13] The case for the Commissioner is that the stipulation that a s 89K(6) challengebe treated as a challenge under Pt 8A is to be distinguished from other types ofchallenges that are brought under Pt 8A. That distinction was reflected by anamendment (also in August 2011) to the definition of "challenge" in s 3 of the TAA,which added a separate definition of "challenge" as "to commence proceedings undersection 89K(6) challenging a refusal to issue a notice".[14] The scope of rights to appeal to the High Court from decisions of the TRA isgoverned by s 26A of the TRAA, which provides:3 Through the Taxation (Tax Administration and Remedial Matters) Act 2011.4 See s 89K(6) at [8] above.26A Challenges appealed to High Court(1) Unless subsection (2) applies, the determination by an Authority of achallenge may be appealed to the High Court if—(a) the amount of tax involved in the appeal is $2,000 or more; or(b) the amount of net loss involved in the appeal is $4,000 ormore.(2) The determination by an Authority of a challenge may not be appealedto the High Court if the determination was made by the Authorityunder a tax law that provides for the Authority's determination to befinal.(3) This section applies only to challenges commenced under Part 8A ofthe Tax Administration Act 1994.[15] The Commissioner contends that s 26A(2) applies in the present circumstancesbecause there is a tax law that provides for the TRA's determination to be final. Thatis found in s 138S of the TAA, which provides:138S Challenge to be heard before Taxation Review Authority(1) A challenge to a disputable decision made by the Commissionerunder—(a) the Student Loan Scheme Act 2011, or any provision of thisAct that applies in relation to an employer's obligation underthe Student Loan Scheme Act 2011; and(b) the Child Support Act 1991, or any provision of this Act thatapplies in relation to an employer's obligation under the ChildSupport Act 1991; and(c) any other tax law, where that tax law or another tax lawspecifies that the disputable decision is to be determined by aTaxation Review Authority,—is to be commenced, heard, and finally determined by a TaxationReview Authority.(2) Subsection (1) prevails over any other section in this Part.[16] On the Commissioner's analysis, s 138S(1)(c) applies here because s 89K(6)does not allow a disputant to elect to commence proceedings in either the TRA or theHigh Court, and instead stipulates only that such a challenge can be brought beforethe TRA.[17] The Commissioner contrasts this mandatory stipulation (for such challenges tobe brought only in the TRA) with the broader scope of the election for disputantsprovided for in ss 138B and 138C of the TAA, which may be commenced in either theTRA or the High Court. The scope of such disputes excludes, in s 138E of the TAA,any brought under s 89K, among other challenges. The relevant parts of s 138E are inthe following terms:138E Certain rights of challenge not conferred(1) This Part does not confer a right of challenge with respect to—(e) a matter which by a provision in—(iv) any of sections 89K is left to the discretion, judgment, opinion, approval, consent,or determination of the Commissioner; [18] The Commissioner treats the specific requirement under s 89K(6) for anyrelevant challenge to be brought only in the TRA (when that is contrasted against thewider discretion afforded to disputants to commence either in the TRA or the HighCourt), as a law specifying that the disputable decision is to be determined in the TRAfor the purposes of s 138S(1)(c), with the consequence that it must be determinedfinally in that jurisdiction.[19] Whether the jurisdiction exists to pursue an appeal from a TRA decision unders 89K has not been raised previously. Ms Deligiannis for the Commissionersubmitted that the history of these various statutory provisions and the limitedexpansion on what was previously a decision in the Commissioner's discretion,support the interpretation she contended for. She also submitted that consideration ofthe scope of rights of challenge in analogous contexts supports the Commissioner'sapproach to the confined scope that excludes a right of appeal in the presentcircumstances.The appellants[20] Mr Beck for the appellants criticised the analysis of statutory provisions reliedon by the Commissioner as convoluted and that it relied "on an interpretative jugglingact, bringing together various sections and holding them in a precarious balance". Onthe argument for the appellants, Mr Beck urged that the natural and ordinary meaningof s 89K(6) provided that the taxpayer's challenge to the Commissioner's refusalconstituted a challenge under Pt 8A of the TAA. The consequence was that it was adetermination on a challenge that could be appealed to the High Court because s 26Aof the TRAA provided such a right of appeal.[21] Mr Beck argued that if Parliament had intended to limit the extent to which theprocess under Pt 8A of the TAA applied, then it would have explicitly provided ins 89K(6) that the determination of the TRA was final. Given that s 89K(6) was aremedial provision intended to address the lack of an adequate process for dealing withlate NOPAs, it could be expected that the remedial provision would be carefullyphrased to address the previous deficiency in a comprehensive way. Arguably, thathad been achieved by characterising a challenge under s 89K(6) as a challenge for thepurposes of Pt 8A of the TAA.[22] Provision of a right of appeal could be expected as Mr Beck contended becausea first right of appeal is recognised under s 27(2) of the New Zealand Bill of RightsAct 1990 (NZBORA). That presumption heightened the expectation that if Parliamenthad intended not to extend a right of appeal to decisions under s 89K(6), then it wouldhave explicitly stated that limitation.[23] Consistently with his characterisation of s 27(2) of NZBORA, Mr Becksubmitted that the Court of Appeal has recently recognised that appeal rights are notto be lightly disregarded. He cited that Court's decision declining to transferMr Borrowdale's judicial review (on the lawfulness of government lockdown ordersin response to COVID-19) into that Court:5[14] The question this application begs is whether this Court should nowlimit the available judicial steps to two (Court of Appeal, and perhaps Supreme5 Borrowdale v Director-General of Health [2020] NZCA 156, (2020) 25 PRNZ 184.Court) rather than three (High Court, Court of Appeal and perhaps SupremeCourt). And behind that lies another question, which is whether we shouldthereby deny parties' ordinary constitutional entitlement to a first appeal as ofright (any appeal to the Supreme Court being by leave only). While leavemight be anticipated, that is still a step this Court should be reluctant to take,especially where the issues are ones of such fundamental importance as these.[24] Mr Beck argued that s 26A of the TRAA recognises the desirability ofoversight of TRA decisions by the High Court and that the general application of thatappeal right should apply, unless it was explicitly excluded. Implicitly, this argumentwas that the convoluted means of including such TRA decisions within the s 26A(2)exclusion was not made out.[25] Mr Beck submitted that the Commissioner's reliance on s 138S of the TAAwas misconceived because that section was not among the provisions cited in s 89K(6)of the TAA as one of the purposes for which that deeming provision treated challengesto refusal notices as comprising challenges under Pt 8A. Rather, a decision of the TRAon a Commissioner's refusal notice is only to be treated as notice of a disputabledecision for the purposes of the TRAA and the regulations under that Act, and for thepurposes of s 89K(6). Without resort to s 138S of the TAA, the limit on the status ofa challenge under Pt 8A could not apply.The legislative context[26] Inland Revenue and the Treasury undertook a review of disputes proceduresleading to an issues paper in July 2010. That acknowledged submissions from theNew Zealand Institute of Chartered Accountants and the New Zealand Law Societyon the then preferential treatment for the Commissioner, who could apply to the Courtif he or she had missed a relevant deadline and contended that exceptionalcircumstances existed. In contrast, the taxpayer's claim to exceptional circumstanceswhen late in filing a NOPA was only a matter for the Commissioner's decision. Theofficials did not believe that the tests applying to the Commissioner or the taxpayershould be in perfect symmetry, but did recognise:6Judicial review was too cumbersome a tool to deal with what should be a fairlysimple administrative matter that would normally be made by theCommissioner in the first instance. The preferable approach is to allow6 Disputes: a Review (Inland Revenue and the Treasury, Officials' issues paper, July 2010) at [7.33].instead for the consideration of exceptional circumstances to be a disputabledecision.[27] Instead of characterising a refusal notice by the Commissioner as a disputabledecision, s 89K was drafted to enable a prompt challenge to such a refusal to bepursued in the TRA. The commentary by the Finance and Expenditure Committee onthe Taxation (Tax Administration and Remedial Matters) Bill, on what became s 89K,included the following comment:7We recommend a further amendment to clause 64 to make it clear that theCommissioner's decision whether to accept documents in exceptionalcircumstances could be challenged before the Taxation Review Authority.This is to avoid the delay to the whole dispute that would be incurred in takingthis discretionary decision through the disputes procedure or judicial reviewproceedings.[28] The Court has recognised the need for the defined procedures and limits onrights to be enforced in tax litigation. Ms Deligiannis relied on observations of Wylie Jin Arai Korp Ltd v Commissioner of Inland Revenue.8 In that litigation, the taxpayerhad conducted business as a property development company completing a subdivisionover a number of years without filing any tax returns. After ignoring defaultassessments and demands, the taxpayer very belatedly attempted to challenge theCommissioner's refusal to allow it to engage in the dispute procedure. In dismissingthe application for judicial review from the Commissioner's refusal, Wylie Jobserved:9[64] Parliament has put in place detailed provisions detailing how taxdisputes are to be resolved. Those provisions ensure effective taxadministration, and provide certainty to both the Commissioner and taxpayers.Tax for each income year must be determined. There are strict timelines andthere must be finality. The provisions are designed to prevent "administrativechaos".[29] Similar sentiments about the statutory framework reflecting a need for finalitywere made by Heath J in Jacobs-Maxwell v Commissioner of Inland Revenue.10 Thatwas an appeal from a decision of the TRA in circumstances where the taxpayer had7 Taxation (Tax Administration and Remedial Matters) Bill 2010 (257-2) (Select Committee Report)at 6.8 Arai Korp Ltd v Commissioner of Inland Revenue [2013] NZHC 958, (2013) 26 NZTC 21-014.9 Footnote omitted.10 Jacobs-Maxwell v Commissioner of Inland Revenue HC Hamilton CIV-2011-419-559, 25 October2011, (2011) 25 NZTC 20-094.thought that a meeting with IRD officers ended with their agreeing to accept a lateNOPA. IRD disputed that any such agreement had been reached and rejected thebelated NOPA on the basis that exceptional circumstances were not made out. Heath Jtreated s 89K (prior to the amendment introducing subs (6)) as reflecting a need forfinality in the dispute procedure under Pt 4A.11 Mr Beck disputes that decision canavail the Commissioner because it pre-dates the statutory recognition of a right tochallenge the issue of a refusal notice by the Commissioner.Analysis of the statutory scheme[30] Tax lawyers and judges determining tax litigation are routinely required toembark on convoluted applications of a range of provisions in different places todetermine substantive tax liabilities. However, that is no justification for proceduresgoverning dispute and challenge procedures to be similarly convoluted by requiringcross-referencing of provisions enacted in different statutes at different times.Accordingly, there is a superficial attraction in Mr Beck's plea for simplicity, so thatthe exclusions from the right of appeal from decisions of the TRA to the High Courtas provided for in s 26A of the TRAA might reasonably be expected to be anexhaustive list or reference to an appropriately maintained schedule that identified thecategories of TRA decision to which an appeal right did not apply.[31] However, the reality of the existing statutory framework makes such anexpectation somewhat unrealistic and an inadequate answer to the Commissioner'sanalysis that Parliament did indeed intend that the exclusions in s 26A(2) of the TRAAdo include TRA decisions on challenges from the Commissioner's issue of a refusalnotice.[32] Parliament is to be taken as having deliberately confined the prospects of achallenge to a Commissioner's refusal notice to proceedings in the TRA. The absenceof the conventional election for the commencement of challenge proceedings in eitherthe TRA or the High Court has consequences for the prospect of any appeal from theTRA decision.11 At [47].[33] The structure of appeal rights does recognise a range of disputable decisionsthat can go no further than the TRA. The first limitation is in s 26A(1), whichintroduces a minimum amount of tax or tax losses involved, and the range ofexclusions includes all challenges coming within s 138S(1) of the TAA. To the extentMr Beck's submissions depended on the presumption that there is a general right ofappeal from TRA decisions to the High Court, that cannot be sustained. Parliament'sintention in stipulating that any challenge to a Commissioner's refusal notice mustonly start in the TRA is that it becomes a disputable decision to which s 138S(1)(c)applies. To interpret it otherwise would fail to have regard to the latter provision.[34] I do not accept Mr Beck's analysis that s 138S does not apply because it is notexplicitly cross-referred in the terms of s 89K(6). Given the terms of s 138S(1)(c), anexplicit inclusion of it as applying under s 89K(6) is unnecessary because the TRA'sdecision on any challenge to the issue of a Commissioner's refusal notice is one thatmust only be determined by a TRA. Without cross-reference, s 89K(6) is an "othertax law" which specifies such disputable decisions are to be determined by a TRA.[35] That Parliament so intended is reinforced by the scope of decisions in respectof which disputants can elect to commence in the High Court as provided for inss 138B and 138C of the TAA where that list explicitly excludes challenges broughtunder s 89K. Although not a model of clarity, the complementarity between theseprovisions supports the proposition that Parliament did indeed turn its mind to limitinga disputant's entitlement to challenge the issue of a Commissioner's refusal notice toa reconsideration by the TRA of the grounds for filing a NOPA late.[36] I am not persuaded that the proper interpretation can be influenced by the termsof s 27 of NZBORA. As an aspect of rights to justice, s 27(1) confirms the entitlementof all persons to the observance of principles of natural justice. The more relevantsubs (2) confirms the right of those affected by decisions of tribunals or other publicauthorities to apply, in accordance with the law, for judicial review. It is accordinglynot, as Mr Beck submitted, a "constitutional" right of appeal. The Commissionerreadily acknowledges that the appellants in the present circumstances do have a rightto seek judicial review of the TRA decision against them and no more can be made ofit than that.[37] Equally, when the Court of Appeal in Borrowdale was considering whetherthat high profile judicial review should commence directly in the Court of Appeal, itwas assessing the merits of parties to a judicial review that must conventionally beginin the High Court potentially being deprived of one of the rights of appeal thatotherwise would or could exist. It cannot avail taxpayers in the position of the presentappellants in influencing the limits on the rights of appeal from TRA decisions, asspecified in s 138S.[38] In her oral submissions, Ms Deligiannis acknowledged discovering a furtherstatutory provision that was potentially inconsistent with the analysis she hadadvanced in her written submissions.[39] Section 89AC of the TAA was introduced in 2016 to clarify how time wouldrun for the Commissioner's response in cases where a NOPA had been filed late, andthe TRA had then reversed a Commissioner's refusal notice so that the late filed NOPAwas deemed to be filed within time. Arguably, if time ran against the Commissionerfrom the date of late filing of the NOPA, then the Commissioner would always be outof time in filing the response. Ms Deligiannis indicated that the provision wasincluded in the TAA as a result of the arguments signalled, and later resolved, inMawhinney v Commissioner of Inland Revenue.12 The relevant part of s 89ACprovides that the response period in such cases is a two month period beginning on theearlier of:13(a) the day on which the Commissioner issues a notice in favour of thedisputant in accordance with section 89K(1):(b) the day on which a challenge to the Commissioner's refusal undersection 89K(4) is finally judged successful by the Taxation ReviewAuthority or by a court, or the day on which the Commissionerconcedes.[40] Ms Deligiannis acknowledged that the inclusion of the words "or by a court"in s 89AC(b) suggests that appeals may be permitted from decisions of the TRAbrought under s 89K. However, her submission was that this inclusion is an12 Mawhinney v Commissioner of Inland Revenue [2019] NZHC 553, (2019) 29 NZTC 24-006;Mawhinney v Commissioner of Inland Revenue [2020] NZCA 112.13 Emphasis added.unintended slip and that it should not change the limited scope of the rights as definedelsewhere in the structure of provisions she relied upon.[41] A relatively high threshold is required before an apparent inconsistency instatutory provisions can be rationalised on the basis that a later provision is to betreated as a slip relative to the terms of the existing statutory scheme. However, theperceived need for refinement of procedural provisions in relation to disputes andchallenges between the Commissioner and taxpayers certainly renders it an area inwhich draftspersons' slips are potentially more understandable than the legislativeprovisions dealing with more straightforward matters.[42] Having been persuaded of the rationale for the limit on taxpayers' rights tochallenge a Commissioner's refusal notice, I am not dissuaded from that view by thesubsequent introduction of the reference to a court in s 89AC(b). That reference doesnot create a right of appeal where Parliament previously had not intended it. It doesprovide for the contingency that a TRA decision is the subject of a successful judicialreview.Future of the proceedings[43] In the event he was unsuccessful in making out jurisdiction for the presentappeals, Mr Beck's alternative submission was that if there is no right of appeal, thenthe Court should order that the current appeals be treated as applications for judicialreview. I accept that the Court ought to encourage flexibility of procedure to enablethe substantive issues to be determined as efficiently as possible. However, inreflecting on the notices of appeal in these cases, I am not persuaded that theyadequately plead the grounds on which a judicial review of the TRA decisions mightbe advanced. I am accordingly not prepared to have the existing proceedings deemedas if commenced by way of judicial review.Outcome and costs[44] Having upheld the Commissioner's challenge that the Court does not havejurisdiction, the inevitable outcome is that the appeals must be struck out. I so order.[45] The Commissioner has sought costs on a 2B basis. I certify for costs anddisbursements on that basis, without certifying for second counsel, and limiting thosecosts to the entitlement on one proceeding.Dobson JSolicitors:Douglas Burgess, Auckland for appellantsCrown Law, Wellington for respondent