DUVALL LIMITED & ORS V COMMISSIONER OF INLAND REVENUE HC AK CIV 2009-404-1193

DUVALL LIMITED & ORS V COMMISSIONER OF INLAND REVENUE HC AK CIV 2009-404-1193 25 February 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-1193UNDER THE JUDICATURE AMENDMENT ACT 1972 BETWEEN F B DUVALL LIMITED & ORS Plaintiffs AND COMMISSIONER OF INLAND REVENUE Defendant Hearing: 2 December 2009 Appearances: S R G Judd for plaintiffs M Ruffin and R J Wallace for defendant Judgment: 25 February 2010JUDGMENT OF ALLAN JIn accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 3.30 pm on Thursday 25 February 2010Solicitors: Ladbrooks, Auckland john@ladbrooks.co.nz Simon@simonjudd.com Meredith Connell, Auckland Michael.ruffin@meredithconnell.co.nz[1] Duvall Limited (Duvall) has for many years been engaged in litigation against the Commissioner of Inland Revenue (the Commissioner). The dispute concerns the taxation consequences of a scheme devised by Mr J G Russell, aimed principally at the minimisation or avoidance of income tax. In terms of that scheme a number of companies assigned their net profits to entities controlled by Mr Russell, in return for the repayment of the sums involved (less remuneration for Mr Russell's services) in the form of tax free capital. [2] Proceedings between the Commissioner and the various companies involved in the scheme have for the most part been decided in favour of the former. But after succeeding before the Taxation Review Authority (TRA) in one such proceeding on an issue concerning GST, the Commissioner later conceded on appeal to this Court that the appeal must be allowed. The concession was subsequently confirmed in the Court of Appeal. [3] The proceedings before the TRA concerned certain defined GST periods. Duvall considers that the Commissioner's concession in the High Court binds him in respect of all other GST periods affecting Duvall as well. [4] In this proceeding, Duvall (along with some 21 other plaintiffs claiming a similar interest) initially pleaded four causes of action. It contends that the Commissioner : a) acted unlawfully, unfairly and unreasonably in refusing to amend the GST assessments of the plaintiffs so as to bring them into line with the outcome of the proceedings in which the Commissioner had made a GST concession, and by refusing to accept late objections from the plaintiffs in respect of the assessments; b) acted unlawfully, unfairly and unreasonably by refusing to issue amended assessments for income tax following the abandonment by the Commissioner of an argument that aspects of the scheme constituted a sham, and by refusing to accept late objections from theplaintiffs regarding the Commissioner's failure to issue amended assessments; c) was similarly in default with respect to GST; d) acted unlawfully, unfairly and unreasonably by refusing to issue new assessments in respect of the plaintiffs' tax positions in a manner that met the requirements of s 99(4) of the Income Tax Act 1976. [5] In October 2009 the plaintiffs filed and served an amended statement of claim; 11 new plaintiffs were added and an additional fifth cause of action was included:(e) Managed Fashions Limited claims that the Commissioner failed to act lawfully, fairly and reasonably by seeking interest and penalties when no due date for payment had been notified by him. [6] The Commissioner now seeks to strike out the first, second and third causes of action. He had intended also to seek an order striking out the fifth cause of action, but on 1 December 2009, the day preceding the hearing in this Court, Managed Fashions Ltd was placed in liquidation. Counsel were accordingly agreed that that aspect of the Commissioner's application could not proceed. Counsel are also agreed that the fourth cause of action (which the Commissioner does not seek to strike out) should be stayed for a period of six months to enable discussions between the parties to proceed.Strike out principles[7] High Court Rule 15.1 (formerly r 186) provides that the Court may order the whole or any part of a statement of claim to be struck out where it discloses no reasonably arguable cause of action, or is frivolous or vexatious. The applicable principles are well established. They were summarised in Attorney-General v Prince & Gardner [1998] 1 NZLR 262 at 267. The Court will usually assume in favour of aplaintiff that pleaded facts are true, but it is not required to do so if the pleaded allegations are entirely speculative or without any identifiable evidential foundation, or without particulars where appropriate. [8] The causes of action concerned must be so untenable that they cannot possibly succeed. The jurisdiction of the Court is to be exercised sparingly and only in clear cases where the Court is satisfied that it has the requisite material. But where a case is demonstrated to be plainly hopeless the sooner it is brought to an end the better: Southern Ocean Trawlers Ltd v Director General of Agriculture & Fisheries [1993] 2 NZLR 53 at 63. [9] The foregoing principles apply equally to an application to strike out a judicial review proceeding: Southern Ocean Trawlers Ltd. There is a need for particular caution in exercising the jurisdiction to strike out a pleading where a novel cause of action is pleaded: Couch v Attorney-General [2008] 3 NZLR 725. But even in such cases the Court must consider the position of the defendants who might be at risk of being subjected to potential costs, possibly unrecoverable, in defending untenable claims: Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 (CA) at [51].Judicial review in tax cases[10] Disputes between taxpayers and the Commissioner are governed by a detailed statutory framework. Process requirements, including time limits for issuing challenges, are set out in Part 8A of the Act. [11] The challenge provisions of the Act were recently the subject of an extensive review by the Court of Appeal in Westpac Banking Corporation v Commissioner of Inland Revenue [2009] 2 NZLR 99. There, the Court said:[43] The Tax Administration Act provides for a disputes procedure which enables taxpayers to challenge assessments. Under Part 4A, the procedure begins prior to assessment, with the Commissioner usually serving a notice of proposed adjustment (NOPA) (s 89B). The taxpayer may reject the NOPA by filing a response notice within a fixed period (s 89G). Rejecting the NOPA initiates further dispute resolution steps.[44] Part 8A of the Tax Administration Act provides for a challenge process under which the taxpayer may challenge an assessment, either before the Taxation Review Authority or the High Court. [45] Sitting outside these Parts are ss 109 and 114. Section 109 provides: Except in . . . a challenge under Part 8A – (a) No disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and (b) Every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects. [46] As well, s 114 provides:114. Validity of assessments — An assessment made by the Commissioner is not invalidated – (a) through a failure to comply with a provision of this Act or another Inland Revenue Act; or (b) because the assessment is made wholly or partially in compliance with – (i) a direction or recommendation made by an authorised officer on matters relating to the assessment: (ii) a current policy or practice approved by the Commissioner that is applicable to matters relating to the assessment. [47] These provisions have been described as a code for the resolution of taxation disputes (Ohms, "Dispute Resolution" in Harris et al, Income Tax in New Zealand (2004), p 1134) and provide what might be thought to be a particularly inauspicious statutory context for judicial review (that is, outside of the challenge process provided for by the Tax Administration Act).[12] Later in the judgment, by way of summary, the Court said at [59]:[59] We think it appropriate to continue to apply the established principles as to judicial review in tax cases. We accept that judicial review is available where what purports to be an assessment is not an assessment. Associated with this, we accept that judicial review is available in exceptional cases and thus may be available in cases of conscious maladministration (as was recognised in Futuris). We can reconcile this with ss 109 and 114 on the basis that in such cases (that is, no genuine assessment or conscious maladministration) what is challenged is either not an assessment or, at the least, not the sort of assessment which the legislature had in mind in enacting those sections. On this basis we see the availability of judicial review as depending on the claimant establishing exceptional circumstances of a kindwhich results in the amending assessment falling outside the scope of ss 109 and 114 and thereby not engaging those sections.[13] The Court also observed at [58] that the commencement of judicial review proceedings in other than exceptional circumstances is an abuse of process:Commissioner of Inland Revenue v Abattis Properties Ltd [2003] NZAR 155 at [24]. [14] In the even more recent decision of French J in Tannadyce Investments Ltd v CIR (2009) 24 NZTC 23,499, the following useful summary of the effect of theWestpac decision appears at [39].[39] These sections and their effect on the availability of judicial review in tax cases has recently been considered by the Court of Appeal in Westpac Banking Corporation v The Commissioner of Inland Revenue (2009) 24 NZTC 23,340; [2009] NZCA 24. The court confirmed the following:— 1. The established principles in relation to applications for judicial review in tax cases should not be widened. 2. As a general rule, the correctness of a tax assessment can only be challenged in challenge proceedings under Part VIIIA of the Tax Administration Act. 3. To allow collateral challenge to assessments through judicial review can provide scope for gaming and diversionary conduct. It involves not just delay but diversion of effort and resources. 4. A challenge by way of judicial review is reserved for exceptional circumstances. 5. A challenge by way of judicial review in other than exceptional circumstances is an abuse of process. 6. Circumstances are exceptional for this purpose if they produce a situation in which the assessment can be fairly seen as not within the scope of ss109 and 114 of the Tax Administration Act. 7. Judicial review is essentially confined to two circumstances namely assessments that were not truly assessments at all and where there has been conscious maladministration.[15] It is to be noted that the Supreme Court recently refused an application byWestpac for leave to appeal against the decision of the Court of Appeal. [16] Judicial review in cases such as the present will be available only in exceptional circumstances, and in particular where a plaintiff can establish that the case falls outside the scope of ss 109 and 114 of the Tax Administration Act.The Russell template[17] In order to place the present proceeding in its proper factual context, it is necessary to include a brief description of the elements of the scheme by which Mr Russell sought to achieve tax advantages for participant companies. For that purpose I simply adopt with gratitude the summary provided by the Judicial Committee of the Privy Council in Miller v Commissioner of Inland Revenue [2001] 3 NZLR 316 at [6].[6] In order to explain the issues in the appeal, it is necessary to give some more details of the scheme by which the profits of the trading companies were to be converted into capital receipts in the hands of the shareholders. The first step was for the shareholders to agree to sell their shares to a company controlled by Mr Russell, the price being left outstanding and secured by a mortgage over the shares. This transaction was not intended to be a sale in any commercial sense. The vendors declared themselves trustees of the shares for Mr Russell's company but remained on the register and they remained directors, continuing to run the company as before. And they had an option to repurchase the shares when the scheme had run its course. The sale had two purposes, both of which were entirely tax-related. The first was to make the appellants' company part of a group of companies controlled by Mr Russell, some of which had tax losses. This would enable Mr Russell to take advantage of the group relief provisions in s 191. The second was to create a debt to the shareholders which could be satisfied out of the profits of their company. [7] The next step was for the trading company to agree to pay its net profits, half-yearly, to the purchaser company controlled by Mr Russell. This was called an administration charge. It was income in the hands of the purchaser company, but group relief under s 191 was relied upon to avoid tax. In reality the administration charge was partly a conduit for the money which was to be returned to the shareholders, and partly a fee payable to Mr Russell for the use of the scheme. The proportion was calculated by reference to the amount of tax saved. In addition, the company paid a consultancy fee representing 5 per cent of the administration charge to another Russell company. [8] The third stage was for the Russell company to pay the shareholders their part of the administration charge. This was designated an instalment of the purchase price. The amount of the purchase price was calculated, not by reference to the value of the company but to enable the scheme to mop up a given number of years of expected net profit. When that had been accomplished, the appellants could exercise their option to repurchase the company and carry on as if nothing had happened. Alternatively, as happened in the case of the O'Neils, Mr Russell's company could agree to buy a release of the option for a sum which would create a sufficient new capital debt to enable the scheme to start up again.[18] In essence therefore, a typical Russell template arrangement involved:a) a Russell controlled entity (the parent company) which would purchase the shares or business of a profitable organisation (the trading company); b) the payment at the end of each year, by the trading company to the parent company, of the whole of the trading company's surplus (known as the administration charge) after payment of a consulting fee to Commercial Management Ltd, a Russell entity.Relevant procedural history[19] For present purposes it is sufficient to consider the history of Duvall's dealings with the Commissioner. I will touch upon the position of the remaining plaintiffs later in this judgment. [20] In May 1990 the Commissioner made an assessment of Duvall for seven GST periods between 31 August 1987 and 31 August 1990 inclusive. In November 1990 he issued amended assessments for those seven periods. [21] On 31 May 1991 Duvall filed amended returns for those seven periods, claiming an entitlement to input tax credits but denying liability for output tax. [22] On 11 June 1992 the Commissioner advised Duvall in writing that the amended GST returns were being treated as late objections and that the objections were disallowed. [23] On 27 July 1992, Mr Russell, representing Duvall, wrote to the Commissioner requesting that he state a case for consideration by the TRA. On 28 January 1993, the Commissioner did state a case for the TRA's determination. The proceeding was heard by the TRA on 17 March 1993. Judge Willy delivered the TRA's decision on 29 April 1993: Case Q34 (1993) 15 NZTC 5,159. The TRA held that:a) payments made under the Russell template (the administration charge) for management services were liable for GST; b) the payments were not dividends and accordingly not exempt from GST; c) the earlier findings of the TRA in respect of income tax issues and the application of s 99 of the Income Tax Act did not affect the outcome in respect of GST issues. [24] The TRA was asked to state a case for the opinion of the High Court, which it did on 22 February 1996. Between April 1993 and July 1997, the Commissioner undertook detailed investigations in respect of the affairs of Duvall, in consequence of which he reached the conclusion that the management services concerned did not result from the carrying on of a taxable activity. Accordingly, when the appeal came on for hearing before Baragwanath J in the High Court on 11 July 1997, the Commissioner agreed that the appeal ought to be allowed on that ground. [25] The High Court judgment is reported as F B Duvall Ltd v CIR (1997) 18 NZTC 13,470. The main issue for the High Court was the determination of the grounds upon which the appeal should be allowed. [26] In the High Court, the Commissioner contended that no services, financial or otherwise, were supplied by the taxpayer and so no GST liability arose. Duvall submitted that it was not open to the Commissioner to raise the "no services" argument (because it had not been raised before the TRA) and, further, that the services it supplied to its subsidiaries were financial services and therefore exempt from GST. The High Court held that the Commissioner's contention was open for consideration by the Court, and that there was no reason why the parties should not reverse their position on appeal. The Court concluded that no services were supplied by the taxpayer in return for the administration charges. [27] Following the High Court judgment the Commissioner made zero assessments which, while deducting the wrongly imposed output tax, also rejectedDuvall's claim for input tax credits. That outcome was challenged by the taxpayer, but the High Court held in two further judgments reported as F B Duvall Ltd v CIR(1999) 19 NZTC 15,039 and F B Duvall Ltd v CIR (1999) 19 NZTC 15,515, that both output tax and input tax deductions should be reduced to zero in each period. [28] Duvall appealed to the Court of Appeal. It contended that the Commissioner was not entitled before Baragwanath J to alter the stance previously taken by him on the output tax question, and by that means to open up the question of input tax credits. The issue for the Court of Appeal was whether the High Court had had jurisdiction to permit the Commissioner to raise the "no taxability activity" argument in that Court. [29] The Court of Appeal's judgment was delivered on 17 May 2000: F B Duvall Ltd v CIR (2000) 19 NZTC 15,658. Duvall succeeded. The Court of Appeal held that in the High Court, the Commissioner was necessarily confined to the stance he had taken before (and upheld by) the TRA, namely that Duvall was liable for output tax, having made supplies to subsidiaries for which it received the administration charges. The Court of Appeal concluded that the Commissioner's attempt to assert the opposite, namely that no supplies of services were made by Duvall, was outside the assessment that was in issue before the TRA. The Court of Appeal held that the High Court had exceeded its jurisdiction in allowing the Commissioner to change his stance; the High Court's role was confined simply to allowing the appeal by consent. [30] The Court of Appeal summarised its conclusions in the following manner:[28] For these brief reasons we conclude that the appeal must be allowed, with the result that the orders made in the High Court in the judgment of 9 October 1997 and in subsequent judgments beyond the bare allowance by consent of the appeal against the decision of the TRA, are quashed. In lieu it is ordered that the GST assessments referred to in the case stated by the Commissioner to the TRA be amended by deleting the amounts shown as payable by way of output tax in respect of administration fees for supplies made by Duvall to subsidiary companies. We understand from discussion with counsel that in that result the Commissioner will recognise the input tax credits and make appropriate refunds without further order. It will then be for the Commissioner to determine whether he is able to make further assessments in respect of the input tax credits, notwithstanding the prima facie time bar, and, if so, whether he should do so.[31] The Commissioner was, in the event, precluded from making a further assessment in respect of input tax credits however, by reason of the application of the relevant statutory time bar. [32] Following the judgment of the Court of Appeal, Duvall asked the Commissioner to make amended GST assessments in accordance with the Court of Appeal judgment. The Commissioner failed to do so. Duvall asked that its request be referred to the TRA. The Commissioner duly stated a case on 20 February 2001, but as a preliminary issue claimed that Duvall was unable to request a case to be stated, as the objection, if any, made by Duvall had not yet been determined by the Commissioner. Accordingly, the questions for determination in the case stated included the following: a) Whether Duvall had made timely and competent objections to the assessments made by the Commissioner; b) If not, whether Duvall was able to make a late objection to the periods in question; c) Whether Duvall, in the absence of a determination regarding the alleged objections, was able to request a case stated. [33] The TRA directed that these jurisdictional questions be the subject of a preliminary hearing, following which it made an interim decision on 27 February 2002: Case V18 (2002) 20 NZTC 10,207; and a final decision on 5 September 2003, reported as Case W25 (2003) 21 NZTC 11,251. [34] The TRA held that it had jurisdiction to remedy any shortcomings regarding the assessments, including curing any procedural defects. It considered that the Commissioner was obliged to reassess in accordance with the earlier decision of the Court of Appeal and that Duvall was accordingly not liable for output tax, but that there was no jurisdictional basis to embark upon a consideration of whether Duvall was entitled to corresponding input tax credits.[35] At the request of the Commissioner, the TRA stated a case to the High Court. The judgment of Priestley J was delivered on 8 March 2005: CIR v F B Duvall Ltd(2005) 22 NZTC 19,142. The Commissioner's appeal was allowed. Priestley J held that the TRA had no jurisdiction in respect of the case stated where there had been no disallowance of an objection, the TRA having no entitlement to discharge the Commissioner's statutory responsibility to exercise his discretion. His Honour held that the Commissioner could not be compelled to accept a late objection; nor did the Commissioner have a statutory duty to reassess prior to accepting a late objection. [36] Duvall appealed to the Court of Appeal. The decision of that Court was delivered on 7 April 2006: F B Duvall Ltd v CIR (2006) 22 NZTC 19,866. The Court of Appeal dismissed Duvall's appeal. It observed that where an objection is late, it must first be accepted by the Commissioner. If so accepted, the objection must be considered by the Commissioner before a decision is made by him, either to allow or disallow it. If the decision is to disallow the objection or to allow it only in part, then the taxpayer may require the Commissioner to state a case. The Court of Appeal further noted that the Commissioner is not bound by time limits when considering whether to allow or disallow a late objection:[32] There are no specific time limits on the Commissioner for the consideration of the objection but the taxpayer is not deprived of remedy where unreasonable delay occurs. As Priestley J pointed out, judicial review is available and, in the absence of the TRA having jurisdiction, that would have been the proper course to follow in this case if Duvall considered the delay to have been unreasonable.[37] At the time of the hearing before Priestley J, the Commissioner had made no decision with respect to acceptance or rejection of Duvall's amended GST returns. But by letter dated 31 May 2005, the Commissioner wrote to Duvall, advising that he declined to accept as timely Duvall's objections based on amended GST returns for the six month periods ended 30 June 1995 and 31 December 1996 respectively. [38] On 5 May 2006, shortly after delivery of the most recent Court of Appeal judgment, the Commissioner again wrote to Duvall, advising that he declined to accept as timely, Duvall's late objections in respect of eight six month periods ended between 31 May 1990 and 31 December 1994.[39] Mr Russell responded on behalf of Duvall to the later letter, by requesting in writing on 11 May 2006, that the Commissioner state a case to the TRA. The Commissioner took the view that by reason of the rejection of the late objections, there were no extant objections upon which to base the stating of a case for the determination of the TRA. Duvall took no step to pursue its request for a case stated; nor is there evidence of any other step until this proceeding was commenced in March 2009.First cause of action[40] Analysis of the plaintiffs' pleading is significantly hampered by reason of the paucity of particulars, and the complete absence of affidavit evidence from the plaintiffs, whether in support of the application for judicial review, or in opposition to the Commissioner's strike out application (save for a late one page affidavit from Mr Russell which does not address the first cause of action). In their amended statement of claim the plaintiffs pleaded that:15. The defendant has failed and/or refused to exercise his statutory powers as alleged at paragraph 4 above to amend the assessments of GST for F B Duvall Ltd and the other plaintiffs to ensure that the assessments of GST for all plaintiffs and for all relevant tax years are correct and consistent with the treatment of F B Duvall Ltd for the periods August 1987–August 1990. 16. The defendant has failed and/or refused to exercise his statutory power to accept late objections from the plaintiffs as alleged at paragraph 5 above to allow the plaintiffs to object to the defendant's refusal to amend the GST assessments. 17. By failing to exercise his statutory powers as alleged in paragraphs 15 and 16 above, the defendant has failed to act in accordance with law, fairly and reasonably because; a. The defendant has failed to adopt a consistent position and has failed to treat all tax periods and taxpayers in the same way even though the factual basis for the defendant's decisions was identical for each period and each taxpayer; b. The defendant has failed in his statutory duty to use his powers to ensure the correctness of assessments of tax. If the correct legal position is that GST is not payable on the Administration Charge then the existing assessments of the plaintiffs that state that GST is so payable must not be correct under tax laws;c. No reasonable person in the position of the defendant would continue to insist on assessments that are incorrect; d. No reasonable person in the position of the defendant would fail to issue new assessments to each of the plaintiffs that correctly assessed their tax position in accordance with his own view as expressed in the F B Duvall case in the High Court and the Court of Appeal; e. No person in the position of the defendant would submit to the Courts in one case that GST did not arise on the Administration Charge and then maintain in his dealings with the same taxpayer for different tax periods and in his dealings with other taxpayers in identical situations that GST did arise; f. no reasonable person in the position of the defendant would refuse to accept late objections from the plaintiffs when the circumstances that have given rise to the objections did not arise until after the ordinary period for making an objection had expired and were caused by the defendant's own conduct. WHEREFORE THE PLAINTIFFS CLAIM: A. A declaration that the defendant has failed to act in accordance with law, fairly and reasonably; (i) by refusing to amend the GST assessments of the plaintiffs to be consistent with the GST position of F B Duvall Ltd for the tax periods from August 1987– August 1990; and/or (ii) by refusing to accept late objections from the plaintiffs regarding the existing GST assessments; and/or B. An injunction or an order in the nature of mandamus; (i) requiring the defendant to amend the GST assessments of the plaintiffs to be consistent with the GST position of F B Duvall Ltd for the tax periods from August 1987–August 1990; and/or (ii) requiring the defendant to accept late objections from the plaintiffs in relation to the existing GST assessments. C. Costs.[41] This pleading tends to conflate two quite separate issues. The first is the Commissioner's decision to decline to accept a late objection. The second concernsthe precedent effect of the Commissioner's concession in the proceedings before Baragwanath J in the High Court.Commissioner's decision to decline to accept late objection[42] It is common ground that the Commissioner's discretionary power to accept a late objection in this case arose under the now repealed s 33(2) of the Goods & Services Tax Act 1985. That subsection read:(2) No notice of objection given after the time specified in the notice of assessment or after such extended time as the Commissioner may allow under subsection (1) of this section, shall be of any force or effect unless the Commissioner, in the Commissioner's discretion, accepts the same and gives notice to the objector accordingly.[43] In CIR v Wilson (1996) 17 NZTC 12,512 the Court of Appeal considered the proper approach to be taken to the materially identical provisions of s 30(2) of the Income Tax Act 1976. The Court of Appeal there confirmed that the Commissioner's discretion was reviewable, but only within relatively narrow parameters. Richmond P, delivering the judgment of the Court said at 12,520:While the correctness of the assessment cannot be challenged outside the statutory objection procedures, the legitimacy of the process employed in making the assessment or determination — here the decision refusing the late objection request — is justiciable on traditional administrative law grounds. As in the case of any authority entrusted with statutory powers of decision, the Commissioner's statutory powers must be exercised in accordance with explicit or implicit statutory criteria and to serve the purposes of the legislation. In the end it is for the Court in any review proceedings to decide whether the discretionary decision has indeed been made upon a proper self-direction as to the legal criteria and their application to factors material to that decision. It is not for the Court to question the particular weight attached by the decision maker to particular material factors. But in some rare circumstances the outcome of the discretion or its expression may be such that the only proper inference is that the power itself has been misused (Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655; also reported as Brierley Investments Ltd v C of IR (1993) 15 NZTC 10,212 (CA) ; New Zealand Maori Council v Attorney-General [1987] 1 NZLR 641;Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997; andR v Inland Revenue Commissioner, ex party Preston [1985] 1 AC 835). The imposition of time limits is a central feature of tax administration in New Zealand, as in other jurisdictions. It is part of the scheme and policy of the legislation. Without time constraints, administrative chaos anduncertainty would ensue. The Commissioner could not close the books. Taxpayers would not know where they stood. The setting of time limits and other constraints throughout the legislation recognises that the correctness and the quantification of tax liability is not an absolute value. It is crucial in the making of an assessment. Once the assessment is made, in the absence of a timely objection the assessment is determinative of liability. The focus then shifts. If a late objection application is made the Commissioner has to weigh and balance the relevant public policy considerations applicable at that time in the particular circumstances of the case. If particular factors are material to that decision then the weight to be given to the various factors and the overall balancing judgment fall within the wide discretion understandably reposed in the Commissioner. The inquiry under s 30(2) calls for some explanation from the taxpayer of the failure to make timely objection and, where there is significant delay involved, the reasons for the failure to make the application earlier. Depending on the circumstances, it may be relevant to consider whether the failures or failure were due to inadvertence, negligence, an agent's action or a deliberate decision by the taxpayer, as the case may be. Next, the apparent merits of the proposed objection may, and often will be, a relevant factor. The correct ascertaining of the liability imposed by the Act is not at that point the simple yardstick. Otherwise, all late objections would have to be accepted, however inadequate the explanation for their lateness, if it could be suggested on whatever evidence was then furnished to the Department that the original assessment was incorrect. But the purpose of a discretionary relaxing of time limits is to allow consideration of a challenge to the adjustment on the ground that the income tax liability has been overstated. That is particularly important in a system which attaches so much significance to voluntary compliance by all taxpayers with the Inland Revenue Acts and which, to maintain goodwill, has to be seen to be operating fairly. In some circumstances the inadequacy of the explanation for lateness may make it unnecessary to consider the apparent strength of the proposed objection. In many circumstances, however, it will be a material factor to be weighed.[44] Brief affidavit evidence about the late objection was given for the Commissioner by Mr T I Strang, employed by the Commissioner at Manukau as a Team Leader – Investigations. Mr Strang explains that the Commissioner did not see any point in assessing the amended returns, because he stood by the earlier assessments. The Commissioner is evidently concerned that Duvall ought not to be entitled to claim input credits and refunds, but not be liable for GST output tax. That circumstance arises only where supplies are zero rated. Mr Strang points out also that no GST output tax is payable in respect of exempt supplies. [45] In response, Mr Judd for Duvall emphasises an argument that Duvall is not presently concerned with questions of input tax credits. Rather, it seeks to gain thesame output tax advantage for other periods as was conceded by the Commissioner in the High Court proceedings before Baragwanath J. [46] As is plain from the judgment of the Court of Appeal in Wilson, the apparent strength of a late objection may well be a material factor in assessing whether the Commissioner has properly exercised his discretion not to accept it. In that respect, Mr Ruffin for the Commissioner maintains that the merits of the objection are entirely against Duvall. He says that the effect of the 2000 decision of the Court of Appeal must be confined to the periods covered by the GST returns then in contention, because Duvall succeeded in that Court on a technicality, which was that the High Court had exceeded its jurisdiction in allowing the Commissioner to change his stance in determining the appeal as it did. Accordingly, Mr Ruffin argues, the 2000 decision has no precedent value for other GST periods. [47] I am by no means certain that that argument is correct. It did not find favour with the TRA. Mr Strang has explained why the Commissioner has taken the view that a distinction is to be drawn between the GST periods that were in contention in the Court of Appeal and those for other periods. In respect of those periods now in dispute, Mr Strang says that Duvall cannot succeed because the relevant supplies are neither zero rated nor exempt. It appears however that the concession earlier made by the Commissioner in the High Court and Court of Appeal was based upon the conclusion that Duvall was not carrying on a taxable activity at all. There is insufficient material before the Court on the present application to take the discussion any further. [48] I am conscious of course that the effect of cases such as Westpac is to limit the circumstances in which judicial review will be available in tax cases. Moreover, as was pointed out in CIR v Abattis Properties Ltd (2002) 20 NZTC 17,805 at [24], issues as to process and validity may be dealt with as part and parcel of challenge proceedings in Court under Part A of the Tax Administration Act 1994. As constituted, that Act now incorporates a detailed regime for the disposal of late objections. But that regime does not apply to the present case, which is governed by the repealed s 33(2).[49] Because in Wilson the Court of Appeal expressly confirmed that judicial review was available in respect of the Commissioner's discretion under the subsection, I consider that, notwithstanding the trend of recent authority, Duvall may well be entitled to maintain a cause of action against the Commissioner, but only insofar as it concerns the Commissioner's decision not to accept a late objection. How far that carries Duvall remains to be seen. As is plain from the final paragraph in the Court of Appeal's judgment in Wilson, the relief available to Duvall, if successful, would be confined to an order directing the Commissioner to reconsider the late objection.Commissioner's refusal to amend plaintiff's GST assessments[50] The other limb of Duvall's first cause of action seeks what is in effect substantive relief in respect of the core tax issue. Duvall claims that by refusing to amend the GST assessments for other periods, the Commissioner has acted unlawfully, unfairly and unreasonably. Although as a general principle such an allegation is properly the subject of judicial review proceedings, the claim in the present tax context falls foul of the principles discussed in Westpac. It amounts to nothing more than a direct challenge to the ultimate tax outcome of the Commissioner's refusal to act upon Duvall's amended GST returns. As Westpacmakes clear, issues of that type must be determined in properly constituted challenge proceedings. [51] Duvall has not made out a tenable case for the resolution of the substance of its GST dispute with the Commissioner by way of judicial review proceedings.The remaining plaintiffs[52] I turn to the position of the remaining plaintiffs. There is absolutely nothing before the Court from them about the conduct of their GST affairs. Mr Strang has deposed to the current status of the various plaintiffs for GST purposes, but without significant detail. In some cases no GST evidence at all is available. In other casesplaintiffs have been deregistered for GST purposes and some, but not all, have objected. Where there have been objections, some have lapsed. [53] The statement of claim contains a simple allegation to the effect that all of the plaintiffs (not merely the parent companies) are entitled to be treated for tax purposes in the same manner as Duvall, because "there was no factual distinction" between Duvall and the remaining plaintiffs for GST purposes. [54] On the view I have taken on the first cause of action, there is a tenable argument that judicial review is available in respect of the Commissioner's decision not to accept (as distinct from allow) a late objection from Duvall. There is simply no evidence whatever (nor any relevant allegation) in respect of any other plaintiff about the filing and/or disposal of late objections. Such claims must be considered on a case by case basis, supported by proper pleadings and evidence. There is nothing to suggest that at present the remaining plaintiffs are willing or able to do that.First cause of action: conclusion[55] In summary, I find that Duvall has a tenable argument for review of the Commissioner's decision not to accept (as distinct from allow) its late objections (made by way of amended return), but the relief available to Duvall must be confined to an order directing the Commissioner to reconsider the late objections. [56] Duvall is not entitled to maintain, by way of judicial review, a claim in respect of the correctness of the assessment itself. To that extent the first cause of action is struck out, with leave to amend in order to incorporate that portion of the first cause of action that survives. The first cause of action is struck out in respect of the remaining plaintiffs in its entirety, but without prejudice to their entitlement to file fresh, properly constituted proceedings that are confined to the procedural issues which have survived in respect of Duvall.Second cause of action[57] Over time, the Commissioner has reconstructed the Russell template arrangements for income tax purposes, in reliance on s 99 of the Income Tax Act 1976. One such method of reconstruction became known as Track C. This track involved the assessment of the administration charge as income of each parent company. As appropriate, it also involved a determination that the relevant transactions were shams. [58] From about February 2007, the Commissioner indicated to the plaintiffs that the Track C assessments would be withdrawn. That indication was given to the Court of Appeal by counsel for the Commissioner during the hearing of the appeals in Ron West Motors (Otahuhu) Ltd v CIR (2007) 23 NZTC 21,434, and Wire Supplies Ltd & Ors v CIR [2007] 3 NZLR 458. [59] The plaintiffs contend that the Commissioner has no power to withdraw an assessment except by way of the issue of a further or amended assessment. It is claimed that because there has been no fresh assessment the "existing incorrect assessments remain in place" with consequential tax disadvantages to the plaintiffs. The plaintiffs plead that the failure of the Commissioner to issue a fresh assessment is unlawful, unfair and unreasonable. Declarations are sought to that effect, along with an order requiring the defendant to amend the relevant assessments in order to implement the withdrawal of the Track C assessments, or alternatively, an order requiring the Commissioner to accept late objections from the plaintiffs. [60] The Track C assessments were withdrawn at the latest by letter dated 26 July 2007 from the Commissioner to Mr Russell. This letter read as follows:Track C assessments of Companies Controlled by you in 19961. Further to your letter dated 28 June 2007. 2. In the course of the recent Court of Appeal hearing involving Wire Supplies Limited & Others and the Douglas & Henwood Group of cases, counsel for the Commissioner indicated that the Commissioner would be withdrawing the Track C assessments issued in 1996 in respect of companies controlled by you.3. This letter is being sent to you to formally notify you that the Commissioner formally withdraws all of those Track C assessments issued in 1996 in relation to companies controlled by you. 4. These are being withdrawn on the basis that the Commissioner does not consider that it is appropriate to maintain the positions that doctrine of sham was the appropriate basis of adjustment for those assessments. 5. For each of those companies controlled by you, the returns filed by you were all nil assessable income returns. This letter confirms that is the existing position. 6. This means that there are no income tax issues for the years covered by those 1996 assessments that give any grounds for a request to be made for a case stated. There is nothing to be determined by a Hearing Authority. 7. Given that this position for each company is as returned by you for these relevant years, there should be no need for any consequential consideration of any other adjustment issues. 8. However if you think that such issues arise, could you please articulate and particularise them on a company by company basis delivering your request in the first instance to Trevor Strang, Inland Revenue, PO Box 76198, Manukau City, who will manage any such requests. 9. It is appreciated that you have semi-retired from your business operations and have litigation obligations. 10. If there are any consequential issues that arise, these could be dealt with on a managed basis and staggered over a reasonable period of time to alleviate any burden on you dealing with these matters on your own.[61] It is to be noted in particular that the Commissioner's view at that time was that, as set out in the income returns filed by the companies under Mr Russell's control, there was no assessable income. [62] It is settled law that an assessment is a decision by the Commissioner, quantifying the amount of tax payable by the taxpayer for the period in question:CIR v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 at 690. It must be definitive as to the taxpayer's liability at the time it is made, and subject to challenge only through the objection process. It is the substance rather than the form of the decision that matters: JD and CE Henson Partnership v CIR [2009] 24 NZTC 23,802. The Commissioner is required to give notice of an assessment to a taxpayer pursuant to s 111 of the Tax Administration Act 1994. But no particular form ofnotice is prescribed, and indeed, assessments may be found in more than one document. In other words, documents may be combined to form an assessment:Henson at [24]. [63] Section 6 of the Tax Administration Act provides:6 Responsibility on Ministers and officials to protect integrity of tax system(1) Every Minister and every officer of any government agency having responsibilities under this Act or any other Act in relation to the collection of taxes and other functions under the Inland Revenue Acts are at all times to use their best endeavours to protect the integrity of the tax system. (2) Without limiting its meaning, the integrity of the tax system includes— (a) Taxpayer perceptions of that integrity; and (b) The rights of taxpayers to have their liability determined fairly, impartially, and according to law; and (c) The rights of taxpayers to have their individual affairs kept confidential and treated with no greater or lesser favour than the tax affairs of other taxpayers; and (d) The responsibilities of taxpayers to comply with the law; and (e) The responsibilities of those administering the law to maintain the confidentiality of the affairs of taxpayers; and (f) The responsibilities of those administering the law to do so fairly, impartially, and according to law.[64] Mr Judd argues that in order to fulfil his statutory responsibilities, the Commissioner is bound to afford each taxpayer certainty by serving on each of the plaintiffs a notice of amended assessment. Otherwise, the plaintiffs are left in a state of uncertainty as to their precise tax position. [65] In support of that proposition Mr Judd relies upon the observations of the Court in CIR v Canterbury Frozen Meat Co Ltd, where at p 689 it was said that an assessment " is a judgment by the Commissioner of the amount on which tax is payable and the amount of that tax".[66] Mr Ruffin argues that the plaintiffs know precisely where they stand; the Track C assessments having been withdrawn the Commissioner reverts to his previous assessment. [67] I accept Mr Ruffin's argument that this cause of action must be struck out. It is presumably aimed at reviving rights of objection that have lapsed, but it is unsupported by authority and in my view untenable. Even if the plaintiffs were entitled to a document explicitly setting out by way of formal assessment the tax position of each plaintiff following the withdrawal of the Track C assessment (which I do not accept) the Commissioner's letter of 26 July 2007 is amply sufficient for that purpose. It explicitly records that the Commissioner accepts the returns filed by each of the companies concerned, which disclosed no assessable income. [68] I am satisfied that the second cause of action must be struck out.Third cause of action[69] Here, the plaintiffs allege that the Commissioner has acted unlawfully, unfairly or unreasonably by failing to amend his assessments of GST in respect of the plaintiffs, in consequence of the withdrawal of the Track C assessments. Track C formed part of the Commissioner's reconstruction activities in consequence of the application of s 99 of the Income Tax Act 1976, which related only to income tax. The Goods and Services Act 1985 has its own tax avoidance provision: s 85. In other words, Track C and its subsequent withdrawal are irrelevant for GST purposes. [70] Mr Judd nevertheless argues that for strike out purposes I must assume that there may be cross-over implications for GST purposes as the result of the Commissioner's change of stance, but he was unable to put any flesh on the bones of that argument, which I reject. [71] The third cause of action must accordingly be struck out.Conclusion[72] The first cause of action is struck out in respect of all plaintiffs insofar as it concerns the substance of the Commissioner's assessment of the plaintiffs' taxation liabilities. It survives however in respect of Duvall only, insofar as it is concerned with the Commissioner's decision not to accept (as distinct from allow) Duvall's late GST objections. In consequence the first cause of action will require significant repleading. In respect of the remaining plaintiffs, the first cause of action is struck out without prejudice to their entitlement to commence fresh properly constituted proceedings that are confined to the procedural issues which have survived in respect of Duvall. [73] The second and third causes of action are struck out in respect of all plaintiffs. [74] The fourth cause of action is stayed by consent until 25 August 2010. [75] By reason of the recent liquidation of Managed Fashions Ltd, no order is required in respect of the fifth cause of action.Costs[76] Costs are reserved. Counsel may file memoranda if they are unable to agree.C J Allan J