MUIR v COMMISSIONER OF INLAND REVENUE [2018] NZCA 129

MUIR v COMMISSIONER OF INLAND REVENUE [2018] NZCA 129 [30 April 2018]IN THE COURT OF APPEAL OF NEW ZEALANDCA395/2017[2018] NZCA 129BETWEEN GARRY ALBERT MUIRAppellantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 21 March 2018Court: Winkelmann, Courtney and Mallon JJCounsel: R B Hucker and J E Tomlinson for AppellantS J Leslie and G H H Gordon for RespondentJudgment: 30 April 2018 at 11.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is ordered to pay costs to the respondent for a standard appealon a band A basis.____________________________________________________________________REASONS OF THE COURT(Given by Mallon J)Introduction[1] Dr Muir appeals a High Court decision of Associate Judge Bell grantingsummary judgment in favour of the Commissioner of Inland Revenue (theCommissioner) for unpaid income taxes, interest and penalties for the years ended31 March 1997 to 31 March 2010 totalling $8,179,830.94 (the summary judgment).1This appeal is a further step in Dr Muir's extended efforts to challenge theCommissioner's assessments of Dr Muir's tax liability for those years.[2] The assessments arise out of a scheme (known as the Trinity scheme) whichDr Muir designed. Under the scheme Dr Muir invested in a loss-attributing qualifyingcompany, Redcliffe Forestry Venture Ltd (Redcliffe). Redcliffe claimed substantialdeductions, under subpart EG of the Income Tax Act 1994 (the Act) (and itssuccessors), that it passed to Dr Muir. Dr Muir offset these deductions against histaxable income. The Commissioner disallowed these deductions.2[3] Dr Muir's challenges to his income tax assessments for the 1997 to 2010 yearswere stayed pending the final determination of the legitimacy of the Trinity scheme.This determination proceeded by way of test cases on the Commissioner's assessmentsfor the 1997 and 1998 years for a number of entities and individuals which hadinvested in the Trinity scheme. Dr Muir was not one of the individuals included in thetest cases. The test cases reached the Supreme Court which held the scheme was a taxavoidance arrangement.3[4] Following that determination, Dr Muir pursued his challenges to theCommissioner's assessments of his tax liability before the Taxation Review Authority(the Authority) and the courts. The present appeal concerns whether theAssociate Judge had jurisdiction to determine the Commissioner's summary judgmentapplication when the High Court had yet to determine whether there were extantchallenge proceedings under Part 8A of the Tax Administration Act 1994.Background[5] There have been many stages to the litigation involving the Trinity scheme.However, for present purposes, the key stages are as follows.1 Commissioner of Inland Revenue v Muir [2017] NZHC 1413, (2017) 28 NZTC 23–019.2 Other entities and individuals had also invested in the Trinity scheme. They similarly claimedtheir losses as deductions from their taxable income. The Commissioner disallowed thedeductions.3 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2NZLR 289 at [148] [Ben Nevis].[6] 19 December 2008: The Supreme Court confirmed in a test case theTrinity scheme was a tax avoidance arrangement.4 The decision concerned the 1997and 1998 tax years. The deductions had been claimed under subpart EG of the Act(depreciation). The Supreme Court held those deductions satisfied the ordinarymeaning of the provisions under which they were claimed. However, the use of thoseprovisions was not within Parliament's purpose and contemplation.The Commissioner had correctly treated them as void.[7] 1 February 2011: In TRA 42/03, 105/04, 23/05, 54/05 and 38/07, the Authoritystruck out Dr Muir's challenge proceeding for the years 1997–2006.5 Dr Muir hadcontended the claimed deductions should have been considered under subpart EH ofthe Act (financial arrangements). The Authority considered the Supreme Court inBen Nevis had determined subpart EG applied but the scheme was nevertheless voidbecause it was a tax avoidance arrangement. This decision had finally determined allmatters as between the parties to that case and their privies which included Dr Muir.Issue estoppel therefore precluded Dr Muir from challenging theCommissioner's assessments, his challenge proceedings were an abuse of process, andthe proper basis on which the deductions should have been considered were mootbecause the scheme was a tax avoidance arrangement.[8] 22 April 2015: In CIV-2011-404-1132, Faire J struck out Dr Muir's proceedingin the High Court challenging the Commissioner's assessment of his income tax forthe years 1997 and 2007–2010 (the Commissioner's strike out application).6 Faire Jalso dismissed Dr Muir's appeal from the Authority's decision.7 Dr Muir contendedsubpart EH was mandatory and the Commissioner's assessments for him were invalid.Faire J considered the Supreme Court in Ben Nevis had finally decided the appropriateanalysis of the Trinity scheme. This meant there was an issue estoppel as against theparties and their privies. He considered Dr Muir was a privy, as the architect of, andinvestor in, the scheme and through his control of Redcliffe. As such Ben Nevis wasbinding on him and his proceeding was an abuse of process.4 Ben Nevis, above n 3.5 Muir v Commissioner of Inland Revenue [2011] NZTRA 2.6 Muir v Commissioner of Inland Revenue [2015] NZHC 792, (2015) 27 NZTC 22–004.7 Faire J also dismissed an appeal from the Tribunal's decision declining an application for recall.[9] 8 December 2015: The Court of Appeal dismissed Dr Muir's appeal fromFaire J's decision.8 Dr Muir contended he was not a privy to the Ben Nevis decisionwhich was for the 1997 and 1998 years. The Court of Appeal disagreed. It heldBen Nevis created an issue estoppel against Dr Muir for the 1997 and 1998 tax years.It was always open for the parties to have claimed deductions under subpart EH inthose proceedings and it was an abuse of process to now attempt to litigate issueswhich could have been determined in the previous proceeding. For the 1999 andsubsequent tax years, it would be an abuse of process to allow Dr Muir to pursue hischallenge because he would inevitably fail. That was because, even if the deductionswere lawful under subpart EH, the deductions would remain part of a tax avoidancearrangement given the findings in Ben Nevis.9[10] 20 July 2016: The Supreme Court granted leave for Dr Muir to appeal theCourt of Appeal's decision on the 1999 and subsequent tax years.10 The grant of leavewas on the question of whether the doctrines of issue estoppel and/or abuse of processoperated to prevent Dr Muir from pursuing his subpart EH argument for the 1999 andsubsequent tax years.11 Dr Muir then sought to amend his grounds of appeal. He nolonger sought to rely on his subpart EH argument applied to the 1999 and followingtax years. He wished to contend he was not prevented from claiming deductions undertwo other provisions for the 2009 year, nor from challenging the imposition ofpenalties or the existence of bona fides in any year.[11] 26 August 2016: The Supreme Court held Dr Muir had correctly conceded theleave to appeal it had granted should be revoked. This was because Dr Muir no longerwished to pursue his subpart EH argument which had been the subject of the grant ofleave. The Supreme Court explained the consequence of this as follows: "[t]heconsequence is that the decision of the Court of Appeal will stand, and the appellant'sproceedings will remain struck out in their entirety."128 Muir v Commissioner of Inland Revenue [2015] NZCA 591, (2015) 27 NZTC 22–034.9 The Court of Appeal also ordered costs against Dr Muir on an indemnity basis.10 Muir v Commissioner of Inland Revenue [2016] NZSC 90, (2016) 27 NZTC 22–060.11 The Supreme Court also granted leave on the decision to award indemnity costs against Dr Muir.12 Muir v Commissioner of Inland Revenue [2016] NZSC 113, (2016) 27 NZTC 22–067 at [11] perArnold J.[12] 26 August 2016: In TRA 42/03, 105/04, 23/05, 54/05 and 38/07, Dr Muirforwarded an amended statement of claim to the Authority relating to the 1998 to 2006income tax years. This pleading raised matters which were said to mean no validassessments had been made by the Commissioner for those years.13 The Authorityrefused to accept the proceeding for filing (because his earlier proceeding had beenstruck out).[13] 29 August 2016: In CIV-2011-404-1132, Dr Muir filed an amended statementof claim in the High Court relating to the 1997 and 2007–2010 income tax years.This pleading also relies on new matters (that is, not subpart EG and EH of the Act)that are said to give rights of deduction.14 The High Court Registrar accepted theamended statement of claim for filing.15[14] 14 September 2016: The Commissioner filed in the High Court an applicationto review the Registrar's acceptance for filing of the amended statement of claim inCIV-2011-404-1132.[15] 8 November 2016: Dr Muir filed in the High Court an application for judicialreview of the Authority's decision not to accept the amended claim in TRA 42/03,105/04, 23/05, 54/05 and 38/07.[16] 5 December 2016: The Court of Appeal dismissed Dr Muir's application (dated7 November 2016) for recall of its 8 December 2015 decision.16 It considered themerits of the Commissioner's strike out application "have been finally determined bythe Supreme Court. This Court is now functus officio."1713 Arising out of a pleading referring to a payment in money's worth of $5,200,000 by Redcliffe toTrinity in July 2009 under an agreement between Southern Lakes Forestry Joint Venture andTrinity dated 23 July 2009.14 Associate Judge Bell notes the amended pleadings both refer to a payment in money's worth of$5,200,000 by Redcliffe to Trinity in July 2009 under an agreement between Southern LakesForestry Joint Venture and Trinity dated 23 July 2009.15 The Commissioner filed a memorandum, at the registry's request, detailing the procedural historyof the case. The High Court then directed that any challenge to the acceptance for filing of theamended statement of claim would need to be made on appropriate application.16 Muir v Commissioner of Inland Revenue [2016] NZCA 579.17 At [3].[17] 23 June 2017: In the High Court, Associate Judge Bell grantedthe Commissioner's summary judgment against Dr Muir for $8,179,830.94 beingunpaid taxes, interest and penalties for the years 1997 to 2010. It is the appeal fromthis judgment that is presently before us. Associate Judge Bell held the evidencesubmitted by the Commissioner proved the amount of the debt claimed. The issue waswhether it was due and owing. Dr Muir contended it was not on the basis there hadnot been a final determination of his tax assessment while he had amended challengeproceedings yet to be determined. Associate Judge Bell held there had been a finaldetermination. More particularly:(a) The Commissioner contended the day of determination of final liabilityof Dr Muir's assessments for the 1997 and 1998 years was 20 July 2016when the Supreme Court refused leave to appeal for those two years.This meant the 30 days for payment expired on 19 August 2016.(b) The Commissioner contended the day of determination of final liabilityof Dr Muir's assessment for the 1999–2010 years was 26 August 2016when the Supreme Court revoked leave to appeal for those years. Thismeant the 30 days for payment expired on 25 September 2016.(c) Dr Muir contended the day of determination of final liability had notarrived because he continued to have proceedings pending before theAuthority and the High Court challenging the assessments. He wasentitled to file his amended pleadings because his pleadings had beenstruck out but had not been finally determined on their merits.(d) Associate Judge Bell considered the High Court, Court of Appeal andSupreme Court had all made it clear that the proceedings, not just thepleadings, were at an end. Once a proceeding was at an end it was notpossible to file fresh pleadings in the same proceeding.(e) Because the proceeding had been struck out on procedural grounds(rather than on its merits) Associate Judge Bell then asked whetherDr Muir could start a fresh challenge proceeding. He concludedDr Muir could not. Pursuant to s 138B(1)(c) of the Tax AdministrationAct, any challenge proceedings had to be brought within two monthsfollowing the issue of the relevant notice of assessment (the responseperiod). Here the last assessment was issued on 28 March 2013.Therefore, the proceedings filed on 29 August 2016 were well out oftime.(f) Exceptional circumstances under s 138D of the Tax Administration Actfor commencing a proceeding after the response period did not exist.Dr Muir had not applied to the Authority or the Court for orderspermitting him to bring such proceedings. The evidence did not giverise to any arguable case of exceptional circumstances. Dr Muir wasseeking to raise arguments which could have been included from theoutset and fresh challenge proceedings at this stage were abusive.(g) Associate Judge Bell considered he had jurisdiction to determine ifthere existed challenge proceedings under Part 8A of theTax Administration Act and when the day of determination of finalliability arose, even though an Associate Judge does not havejurisdiction over those challenge proceedings. He was not making anyfinding on the correctness of the assessments (which was a matter forthe hearing authority). While sometimes a court hearing a taxcollection proceeding may wish to await the outcome of anotherproceeding before deciding whether the deferral period had come to anend, it was not appropriate to do so here – the other proceedings weredoomed to fail.(h) Associate Judge Bell declined an adjournment application to await theoutcome of the upcoming two High Court proceedings (that is, thosebefore Toogood and Jagose JJ). He considered those proceedings werepointless and the taxes had clearly fallen due.1818 He also declined an adjournment on the grounds counsel had only recently been instructed. Healso declined a recusal application made on the ground of apprehended bias.[18] 29 August 2017: In the High Court, Toogood J granted theCommissioner's application to review the Registrar's decision to accept Dr Muir'samended statement of claim dated 29 August 2016.19 The Judge was satisfied theamended statement of claim could not be filed because the proceeding had beenbrought to an end when Faire J struck out the proceeding. The Judge agreed withAssociate Judge Bell in the summary judgment that although Faire J had referred tostriking out the proceeding, there was no doubt he intended to dismiss the proceedingas he had held that it was an abuse of the Court's process. The appellate courtsconfirmed unequivocally that the proceedings were at an end. This meant theRegistrar's acceptance of the amended statement of claim was a nullity. Tendering theamended pleading was an abuse of the Court's process. Accordingly, the Registrarwas directed to remove the pleading from the file and return it to Dr Muir.[19] 29 November 2017: In the High Court, Jagose J dismissed Dr Muir'sapplication for judicial review of the Authority's refusal to accept the amended claimtendered to it.20 The Judge referred to Associate Judge Bell's decision that it hadalready been determined that Dr Muir's proceedings in the Authority and in the Courtwere at an end.21 It was therefore not possible to file an amended pleading.22[20] Appeals have been filed from the decisions of Toogood and Jagose JJ. Theappeal from the decision of Toogood J is set down to be heard on 31 May 2018(CA549/2017). The appeal from the decision of Jagose J is yet to be set down but iscurrently awaiting an application for fixture (CA16/2018).19 Muir v Commissioner of Inland Revenue [2017] NZHC 2082, (2017) 28 NZTC 23–029. Thisjudgment also dealt with an amended pleading which another party involved in the Trinity schemehad sought to file but which had been rejected by the Registrar. The hearing took place on 3 July2017, that is, in the month after the summary judgment application was heard and granted byAssociate Judge Bell.20 Muir v Taxation Review Authority [2017] NZHC 2932.21 Citing Associate Judge Bell's summary judgment decision at [44] which referred to the decisionsof the Authority, the High Court, the Court of Appeal and the Supreme Court which struck out thepleadings.22 Muir v Taxation Review Authority, above n 20, at [15].The statutory provisions[21] The Commissioner's assessment of tax (a disputable decision), 23 can bedisputed only under Part 8 or Part 8A of the Tax Administration Act. Section 109provides:109 Disputable decisions deemed correct except in proceedingsExcept in objection proceedings under Part 8 or a challenge under Part8A,—(a) no disputable decision may be disputed in a court or in anyproceedings on any ground whatsoever; and(b) every disputable decision and, where relevant, all of itsparticulars are deemed to be, and are to be taken as being,correct in all respects.[22] For present purposes the relevant procedure is Part 8A. Section 138B providesfor the challenge proceedings to be commenced "in a hearing authority".[23] The challenge proceeding must be commenced within "the response periodfollowing the issue of the relevant notice of assessment".24 If "a hearing authorityconsiders that exceptional circumstances apply, the hearing authority may allow[the taxpayer] to commence a challenge after the response period".25[24] Section 138P provides the powers of a hearing authority hearing a challenge asfollows:138P Powers of hearing authority(1) On hearing a challenge, a hearing authority may—(a) confirm or cancel or vary an assessment, or reduce the amountof an assessment, or increase the amount of an assessment tothe extent to which the Commissioner was able to make anassessment of an increased amount at the time theCommissioner made the assessment to which the challengerelates; or(b) make an assessment which the Commissioner was able tomake at the time the Commissioner made the assessment to23 Tax Administration Act 1994, s 3.24 Section138B(1)(c).25 Section 138D(1).which the challenge relates, or direct the Commissioner tomake such an assessment.[25] A hearing authority is the Authority or the High Court.26 It is accepted that anAssociate Judge is not a "hearing authority" for the purposes of Part 8A.[26] The effect of bringing a challenge under Part 8A is to defer the due date for thepayment of tax. Specifically, "deferrable tax" is defined as the amount to which ataxpayer "makes a competent objection under Part 8 or that the person challengesunder Part 8A."27 The period of deferral ends "at the expiry of the day that, in relationto the deferrable tax is the day of determination of final liability".28 A taxpayer is notliable to pay the deferrable tax until the 30th day after the date of determination of finalliability.29[27] For a challenge under Part 8A, the "day of determination of final liability"means (so far as is presently relevant):303 Interpretationday of determination of final liability—(b) for the purposes of Part 8A, means—(iii) if a challenge is determined by a Taxation Review Authority in itsgeneral jurisdiction, and not by a court, the day on which the Authoritydetermines the challenge.(iv) if a challenge is determined by a court, whether or not by way ofappeal, the day on which the challenge is finally determined, whetherin those proceedings or in a subsequent appeal.[28] Recovery of unpaid tax is dealt with under Part 10 of the Tax AdministrationAct. Section 156 provides that all unpaid tax is recoverable by the Commissioner on26 Section 3.27 Section 3.28 Section 3.29 Sections 3,138I and 142F.30 Section 3.behalf of the Crown "by suit" in the Commissioner's name. It further provides thatthe District Court has jurisdiction to determine proceedings brought by theCommissioner to recover tax whatever the amount involved. That provision does notexclude the High Court's jurisdiction. Here the Commissioner elected to file thesummary judgment application in the High Court.Appeal[29] Dr Muir contends the Associate Judge exceeded his jurisdiction on thesummary judgment application. He contends that only a hearing authority as definedin the Tax Administration Act can determine if there are extant challenge proceedingsunder Part 8A of that Act such that the tax remains deferrable. It will be for the Courtof Appeal, hearing the appeals from the decisions of Toogood and Jagose JJ, to decideif the amended claims (filed in the Authority and the High Court on 26 and 29 August2016) are to be the subject of a Part 8A hearing.31[30] Dr Muir contends that, if the Court of Appeal finds the amended claims couldbe filed, then the effect of the Associate Judge's decision is to find payable tax whichthe hearing authority is charged with determining de novo. 32 He contends the earliercourts proceeded on the mistaken basis that the Trinity scheme continued in existenceafter 2009 when it had not. The promises to pay in 2048, which were a part of thatscheme, no longer exist. Dr Muir no longer wishes to claim the deductions andsubpart EH prevents them from being claimed. Without those deductions, thechallenged assessments will fail in limine: no deduction will exist to void and nopenalty tax will be payable. Dr Muir will have to pay income tax but this will be lessthan the amount for which summary judgment has been awarded.[31] We do not accept the Associate Judge exceeded his jurisdiction. The arguabledefence Dr Muir raised to the summary judgment was that his challenge proceedingshad not been finally determined. The Associate Judge was therefore consideringwhether it was reasonably arguable that Dr Muir's challenge proceedings were at an31 The Court of Appeal would be a hearing authority for the purposes of Part 8A.32 Because in the striking out cases (Faire J's decisions and the appeals to the Court of Appeal andSupreme Court) it was the pleading (High Court Rules 2016, r 15.1(1)), rather than the proceeding(r 15.2) which was struck out.end following the Supreme Court's decision of 26 August 2016. He was interpretingthat decision (and the decisions which led to it) in finding that they had been finallydetermined. In doing so, he was not assuming any jurisdiction over the challengeproceedings.[32] In support of his submission Dr Muir's counsel relied on the discussion ofPart 8A challenges by McGrath J in Tannadyce Investments Ltd v Commissioner ofInland Revenue.33 In that discussion McGrath J said:(a) Challenge proceedings under Part 8A must be filed in a hearingauthority, which is defined as either the Authority or the High Court.34(b) Section 138P sets out the powers of a hearing authority whenconsidering a challenge.35(c) A hearing authority has all the usual powers to deal with preliminaryissues ahead of, and separately from, other matters of challenge. Forexample, to give directions for the just and expeditious determinationof the challenge.36(d) The effect of s 109 is that no assessment may be disputed in any courtor in any proceedings on any ground except in proceedings taken underthe Act. And:37It is clear that by means of s 109 Parliament was concerned toensure that disputes and challenges capable of being broughtunder the statutory procedures were brought in that way andwere not made the subject of any other form of proceeding ina court or otherwise.33 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR153. He also referred to subsequent decisions discussing that case such as Charter Holdings Ltdv Commissioner of Inland Revenue [2016] NZCA 499, (2016) 27 NZTC 22–075 and Skinner v R[2016] NZSC 101, [2017] 1 NZLR 289.34 At [50].35 At [50].36 At [51].37 At [53].[33] These comments are about bringing and determining challenge proceedings.They are about what a taxpayer must do if he or she wishes to challenge an assessmentand who has authority to determine those proceedings. The Associate Judge's decisiondid not determine any challenge proceeding or make any procedural or preliminarydecisions ahead of a determination on challenge proceedings. He found the challengeproceedings had already been finally determined by the courts (that had jurisdiction).He therefore found, in his summary judgment jurisdiction on the Commissioner's debtrecovery proceeding, that the due date for payment of the tax had passed and the taxwas unpaid. In so doing, he did not exceed his jurisdiction.[34] We accept, however, that a potential timing difficulty arises because thesummary judgment has been heard in advance of the decisions of Toogood andJagose JJ and any appeal from those decisions. It was theoretically possible thatToogood and Jagose JJ would have found the amended pleadings should not be struckout and should have been accepted for filing. That would have resulted in potentiallyinconsistent decisions in the High Court as to whether there were challengeproceedings afoot.[35] Similarly, it is theoretically possible that the Court of Appeal, hearing theappeals from the decisions of Toogood and Jagose JJ, will allow those appeals. If thatwere the outcome, the Associate Judge would have erred in finding the tax was due.However, in the meantime, we would have dismissed Dr Muir's appeal from theAssociate Judge's decision on the basis that an Associate Judge can decide whetherchallenge proceedings have been finally determined by a hearing authority.[36] It was ultimately a matter of judgment for the Associate Judge whether,because of the potential timing difficulty, to grant an adjournment of the summaryjudgment application (potentially with a direction that it be heard with thoseproceedings). He was entitled to make an assessment of the prospects of theoutstanding proceedings in the High Court when deciding to refuse an adjournment.He was not required to grant an adjournment if his assessment was that a finaldetermination had been made and further proceedings were not permitted.38Result[37] The appeal is dismissed.[38] We order costs against Dr Muir for a standard appeal on a band A basis. TheCommissioner did not seek certification for a second counsel and it is accordingly notmade.Solicitors:Hucker & Associates, Auckland for AppellantCrown Law Office, Wellington for Respondent38 Otherwise judgment on the tax due might be perpetually on hold – Dr Muir could file furtheramended pleadings or fresh challenge proceedings the day before the hearing date of the presentappeals and contend they need to be heard before judgment on the tax due could be entered.