HUSTON V COMMISSIONER OF INLAND REVENUE HC AK CIV-2012-404-7069

HUSTON V COMMISSIONER OF INLAND REVENUE HC AK CIV-2012-404-7069 [2 May 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-7069[2013] NZHC 953UNDER the Tax Administration Act 1994 and theDistrict Courts Act 1947IN THE MATTER OF an appealBETWEEN JANE CYNTHIA HUSTONAppellantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 2 May 2013Counsel: T-C Wu for the AppellantP Courtney and K Naik-Leong for the RespondentJudgment: 2 May 2013(ORAL) JUDGMENT OF WOODHOUSE JSolicitors: Mr T-C Wu and Mr D Rooke, David Rooke Law Office, Solicitors, Manukau Ms P Courtney, Crown Law, Wellington[1] This is an appeal against a judgment of the District Court on a claim by the respondent Commissioner against the appellant Mrs Huston for arrears of tax, including some penalties and interest.1[2] Mrs Huston did not appear in the District Court. Her tax agent, Mr J G Russell, attended the District Court on her behalf. The Judge did accept submissions from Mr Russell (including written submissions), but recorded that Mr Russell had no right of audience before the Court. This was an indirect reference to s 57 of the District Courts Act to which I will come.[3] There was no issue relating to the original assessment for core tax for the three financial years in question, or as to the arithmetical accuracy of calculations of penalties and interest that would arise on the basis that payment of the core tax had not been made. The central issue sought to be raised on behalf of Mrs Huston, and stating this in broad terms, was that there had been a failure by the Commissioner totransfer funds from another taxpayer's account which, it was contended, would havebeen sufficient to clear the base tax liability.[4] The Judge said:[8] Now it is perhaps significant to note that the notice of proposed adjustment does not dispute or challenge the assessments of income for the years in question. It is conceded that the arrangement with the trust was that in the 2006 income year the trust paid the core amount assessed. A late filing penalty was imposed. But the Commissioner's position is that thenotice of proposed adjustment cannot be accepted because there is nodisputable decision. Mr Russell argues, however, that the notice of proposedadjustment in and of itself raises the issue and needs to be addressed.[9] The issue in dispute relates to whether or not the transfers should have been made to the creditor, Ms Huston, from the trust. Although those transfers have been made in respect of other tax years there are still amounts outstanding, and I am told in the submissions that have been made by the Inland Revenue Department that at the relevant time there were no funds available to transfer. But in essence because there is no challenge to assessments or other factual matters it does appear to me that there is some difficulty in arriving at the conclusion that in fact there is a disputable decision, and my view is that Mr Russell cannot rely upon the notice of proposed adjustment as effectively stalling these proceedings and preventing the entry of judgment against Ms Huston.1 Inland Revenue Department v Huston DC Manukau CIV-2011-092-000596, 31 October 2012.[10] It is essentially a tax recovery case where the assessments are not in fact disputed at all. As I have said, the notice of proposed adjustment of 21 May 2007 does not relate to a disputable decision, and even although Ms Huston may have requested that the tax debt5 be paid by the family trust that does not in my view relieve her of her statutory obligation to pay tax debts when they become due.[11] I am therefore of the view that the issue that has been raised by Mr Russell on behalf of Ms Huston does not have any merit and I will enter judgment against the taxpayer in that case.[5] On behalf of Mrs Huston, Mr Wu has advanced four principal grounds of appeal. The first ground is that the Judge wrongly declined leave to Mr Russell to cross-examine a witness for the Commissioner (being a case officer who had provided an affidavit) and to call evidence. The second ground is that the Judge wrongly held that Mr Russell was not entitled to appear on behalf of the appellant.[6] These grounds are linked. I will deal with the second ground first.[7] Section 57 of the District Courts Act 1947 provides that except "under special circumstances" a party can only appear in person or through a barrister or solicitor.Mr Russell was not the defendant in the proceeding and he is not a barrister orsolicitor. Contrary to the careful submissions of Mr Wu in support of this ground Iam not persuaded that there was any error by the Judge in this regard. The factualfoundation for the proposition that there were special circumstances was MrRussell's detailed knowledge of Mrs Huston's tax affairs and his expertise in thefield. This was supported by reference to the fact that the payments that Mrs Hustonwanted to come from another taxpayer were payments from the Inland Revenueaccount of M & J Huston Family Trust, a trust which I apprehend Mrs Huston had aninterest in and the tax affairs of which were also handled by Mr Russell.[8] These are not special circumstances. If they were it would justify granting leave to appear on behalf of a party in any case where the party engaged a specialist agent. What is more, it would not have been possible on any proper basis for MrRussell not only to appear effectively as Mrs Huston's advocate, but also to giveevidence on her behalf, which was part of what was proposed.[9] In addition, the Judge's decision in this regard involved the exercise of adiscretion and there is certainly no basis on appeal for in some way interfering withthe Judge's exercise of his discretion in this case.[10] Given this conclusion on the right of audience (as it is called in the District Courts Act) there was no basis upon which evidence could have been called or upon which there could have been cross-examination of the Commissioner's witness. Inany event there were further difficulties in that regard to which I now come.[11] The third ground of appeal is that the Judge was wrong in finding that there was no disputable decision without hearing evidence.[12] To a considerable extent this ground is answered by the conclusion on the preceding grounds. There was unchallenged evidence in the affidavit from the Inland Revenue Department officer in respect of the assessed tax liability. The factual reality is, as already referred to, that there was no challenge to the core assessments for the three years in question. That was expressly acknowledged by Mrs Huston through Mr Russell. The assessments of the Commissioner were based on the returns prepared for Mrs Huston by Mr Russell.[13] What was said to be the dispute was also earlier noted. This related to theproposition that money had not been transferred from another taxpayer's account topay the core tax. Whether that is correct or not, it does not bear on the assessment. In any event it could not be a matter of enquiry in the District Court as the Judge held. This is the effect of s 109 Tax Administration Act 1994. Furthermore, the person responsible for ensuring payment is in fact made, and who remained liable, is Mrs Huston.2 Further aspects of this third ground of appeal flow through to the fourth ground on appeal, which I now come to.[14] The fourth ground is that, as a consequence of a notice of proposed adjustment (NOPA) issued by Mr Russell for Mrs Huston, there was no liability. Stating this in broad terms, this is said to arise because the NOPA proposed adjustments having that effect. The NOPA was not challenged by the Commissioner2 Section 15B of the Act.in accordance with the statutory procedures under the Tax Administration Act and as a consequence, it is argued, the assessment proposed in the NOPA is deemed to be correct.[15] I am satisfied the Judge came to the correct conclusion on this point. Fundamentally, the contentions on behalf of Mrs Huston could not be a matter of enquiry in the District Court on this claim by the Commissioner. This is the effect of s 109 of the Act and the decision of the Supreme Court in Tannadyce Investments Ltd.3[16] The submissions for the Commissioner on appeal record that there was a response to the NOPA by letter dated 13 July 2007 advising that a credit available in the account of the M & J Huston Family Trust had been used to pay GST arrears with the result that no funds were available for transfer. It is stated that this letter was issued within the two month statutory response period in which a notice of response is required to be issued. This letter does not appear to be in evidence, although Mr Wu did not, as I understand it, dispute the fact recorded in the submission. In any event following issue of the NOPA by Mr Russell these proceedings were issued. The proceedings were issued around four years after the NOPA was issued and could not on any reasonable basis be construed as theequivalent of a statutory response. But what the Commissioner's claim made clear isthat the Commissioner was proceeding on an entirely different basis from what was proposed in the NOPA. The proper response on behalf of Mrs Huston would have been either to seek leave to invoke the challenge proceedings under the Tax Administration Act out of time for special reasons or to seek judicial review of theCommissioner's decision to proceed with the claim for tax arrears which Mrs Hustoncontended were not owing. That is not to suggest that an application for judicial review would have succeeded and the difficulties faced in that regard will be apparent from the Supreme Court decision in Tannadyce. But these were the two broad options available.3 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158; [2012] 2 NZLR153.[17] What in my judgment is clear is that the District Court proceeding for recovery of claimed tax arrears could not be the forum for raising the matters that Mr Russell sought to raise on behalf of Mrs Huston. Because of this conclusion it is unnecessary to consider further submissions for the Commissioner as to whether the NOPA gave rise to a disputable decision. In any event, for reasons I have already noted, that also would appear not to be a matter for enquiry in this proceeding, whether in the District Court or in this Court on appeal.[18] For these reasons I am satisfied that the Judge was correct in his conclusion.[19] In consequence the appeal is dismissed.[20] The respondent is entitled to costs on a 2B basis together with reasonabledisbursements. Those are costs for one counsel._________________________________Woodhouse J