JOHN DAVID HARDIE V COMMISSIONER OF INLAND REVENUE HC AK CIV-2009-404-001785

JOHN DAVID HARDIE V COMMISSIONER OF INLAND REVENUE HC AK CIV-2009-404-001785 19 March 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-001785UNDER THE DISTRICT COURTS ACT 1957 AND UNDER PART 10 OF THE HIGH COURT RULES AND UNDER THE TAX ADMINISTRATION ACT 1994 BETWEEN JOHN DAVID HARDIE Appellant AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 9 March 2010 Counsel: Appellant in person C K Wood and T Gillbanks for the respondent Judgment: 19 March 2010JUDGMENT OF STEVENS JThis judgment was delivered by me on Friday, 19 March 2010 at 4pm pursuant to r 11.5 of the High Court Rules. Registrar/Deputy RegistrarSolicitors/Counsel: Crown Solicitor, PO Box 2213, Shortland Street, Auckland 1140 Copy to: J D Hardie, Po Box 45 110, Te Atatu, Waitakere 0651Introduction[1] In a proceeding issued in the District Court at Waitakere, the Commissioner of Inland Revenue (the Commissioner) sought to recover from Mr Hardie (the appellant) unpaid taxes and penalties in the total sum of $10,341,410.32. The proceeding was issued in July 2006 and resulted, after various procedural delays, in the Commissioner being granted judgment by default in respect of a liquidated demand by Judge Recordon on 4 March 2009. [2] From that judgment the appellant has appealed. The hearing of the appeal was originally set down to be heard before Duffy J on 31 July 2009. The appellant, who was self-represented at the time, successfully sought an adjournment in order to enable him to either prepare for the hearing himself or to instruct counsel to appear for him. As matters have transpired, the appellant has not been successful in obtaining counsel and he appeared in person to argue the appeal himself. [3] In support of the appeal, the appellant sought to advance various grounds, most of which had been raised either in the District Court before Judge Recordon or in this Court before Harrison J when the appellant had been pursuing a judicial review proceeding in the High Court: see Hardie v Commissioner of Inland RevenueHC Auckland CIV-2007-404-003354, 28 June 2007. The judicial review proceeding has since been discontinued. The issuing of the judicial review proceeding was one of the reasons why the Commissioner's proceeding for default judgment was delayed. [4] At the outset of the hearing, the appellant sought an order that the appeal be heard in secret by closing the Court and directing that the whole appeal (and the subsequent judgment) be accorded "total confidentiality". Similar orders for secrecy had been sought by the appellant and declined at an interlocutory stage of the appeal: see Minute of Venning J dated 26 May 2009. Moreover, in the context of the judicial review proceedings, the appellant had sought broad confidentiality orders. These were also declined in a judgment of Harrison J dated 28 June 2007. The appellant's further application was declined at the outset on the basis that brief reasons for doing so would be included in this judgment.Secrecy application[5] The starting point is the basic principle of open justice whereby proceedings of the High Court are open to the public and in respect of which the names of the parties are able to be published. The Court of Appeal has held that the concept of open justice applies in taxation cases: see Muir v Commissioner of Inland Revenue(2004) 17 PRNZ 365 (CA). It is true that the provisions of the Tax Administration Act 1994 provide for confidentiality before the Taxation Review Authority, but such confidentiality provisions do not apply to proceedings in the High Court. [6] The application for secrecy was opposed by Mr Wood on behalf of the Commissioner. Counsel advanced such opposition on what he submitted were the well settled principles that require that Court proceedings should be conducted in public unless exceptional circumstances require otherwise: see Clark v Attorney- General (2004) 17 PRNZ 554 (CA). [7] The appellant advanced various grounds in support. One of the submissions involved the proposition that, because of Maori descent, he is not a person who must compulsorily pay any form of tax as "no provision having been made for such in the Treaty of Waitangi nor subsequently". Other grounds mentioned by the appellant included the need for him to continue in practice as a patent attorney and keep lines of credit open. He further sought confidentiality so that he would be able "to work on [the litigation] without distraction". [8] None of these grounds amount to the exceptional circumstances necessary to outweigh the principle of open justice. Matters of public interest, including an appeal such as this from the District Court, must be heard in an open Court. There was no sound basis demonstrated in the appellant's submissions for orders closing the Court and directing that "total confidentiality" apply to the appeal. Such secrecy is the antithesis of open justice. Accordingly, that application by the appellant was declined.Factual background[9] The sum claimed by the Commissioner involves the sum of $9,659,301.51 in assessed income tax for the tax years between 31 March 1992 and 1 April 2003. There is also a GST assessment of $675,858.81 for the period 31 March 2003 to 30 April 2006. The balance of the claim comprises assessed penalties for not filing PAYE schedules and the late filing/late payment penalties and interest in relation to income tax and GST returns. The income tax and GST assessments were default assessments made by the Court after the appellant failed to file tax and GST returns as required by law. [10] There is no dispute between the parties that the appellant has not filed the relevant tax returns in relation to the periods for which the Commissioner has issued the default tax assessment. The appellant has also failed to exercise his right to challenge those default assessments in accordance with the dispute resolution procedures set out in the provisions of s 89D of the Tax Administration Act 1994 (the Act). Moreover, the appellant failed to commence proceedings challenging the default assessments in time before the Taxation Review Authority. Finally, he has not sought leave to commence proceedings in that jurisdiction out of time pursuant to ss 138B and 138D of the Act. These facts are recorded in the decision of the Judge at [9]. [11] During the hearing, I specifically asked the appellant whether he accepted the accuracy of the contents of [9] of the decision under appeal. He agreed that the statements were factually accurate. [12] As a result, the Commissioner was left with no option but to proceed to make default assessments. This is because, having failed voluntarily to file tax returns, the appellant left himself open to default assessments being made by the Commissioner. Once the assessments had been made, the appellant failed to take advantage of the statutory procedures for challenging such assessments. [13] In the District Court, the Commissioner's case was that the taxpayer was bound to pay the sums owing based on those assessments. Hence, the application fordefault judgment. The appellant contended, as recorded by the Judge at [11], that the Court was not bound to issue judgment in accordance with the default assessments issued by the Commissioner because the assessments were made without regard to relevant information, negligently, or even unreasonably with perhaps ill-intent with regard to the damaging impact to the appellant's business interests. [14] The appellant had the opportunity in the District Court to cross-examine an Inland Revenue collections officer with knowledge of his file. Such evidence was used by the appellant, along with other arguments, in an attempt to defeat the Commissioner's claim for judgment by default in the District Court. Ultimately, the Commissioner was successful.The appellant's submissions in the District Court[15] The flavour of the appellant's defence can best be ascertained from a helpful distillation of arguments, described by Judge Recordon as "extremely difficult to comprehend". At [12] the Judge summarised the major arguments as:(1) The assessment of penalties for non-filing of PAYE schedules by the Commissioner is without foundation as Mr Hardie had notified the IRD promptly that as of March 2003 he was no longer employing any staff in his business; (2) The default GST assessments were made by the Commissioner without full information and subject to an arbitrary 10% per month increase based on previous GST filings by the defendant; (3) He was unable to file his tax returns due to various reasons beyond his control, including family-related issues, difficulties with his business systems, and lack of accountancy-related knowledge. In light of that, the Commissioner should have been more accommodating before proceeding to issue default assessments; (4) Given the various difficulties that he was having, it is particularly unjust that there is no other mechanisms under the Act to permit him to challenge his default tax assessments other than by the formal means as these procedures required Mr Hardie to file declarations/returns that would be incomplete or inaccurate and leaving him exposed to further peril; and (5) As a person of Mäori descent, he is not obliged to pay tax under the Treaty of Waitangi.The District Court decision[16] The Judge dealt with the default assessments for income tax and GST and stated:[18] Section 106 of the Act states that in the absence of returns being filed by a taxpayer (and Mr Hardie is a taxpayer eligible to be taxed despite his protestations), the Commissioner may issue default assessments. The amounts assessed are payable unless the taxpayer succeeds in challenging the assessments in accordance with the Act or demonstrates that h e/she is not chargeable with the taxed concerned: s 106(1). Section 106(1) is applicable to the payment of default assessed GST after 1 April 2005. Prior to that the matter is governed by s 27(1) of the Goods and Service Tax Act 1985 and nothing of substance turns on this. [19] Once the Commissioner makes a default assessment under s 106, pursuant to s 89D(2) and (2C), Mr Hardie could only object to the default assessments for income tax and GST by first furnishing returns for the relevant periods as he has never filed any of the relevant returns. [20] Section 89D(5) governs the requisite response period that Mr Hardie had to meet which, depending on the law prevailing at the time, is two or four months after the default income tax or GST assessment by the Commissioner. Mr Hardie took no steps and did not apply under s 89K(1) for an extension of time. [21] Once Mr Hardie had chosen to go down this route, pursuant to s 109 of the Act no "disputable decision" (default GST and income tax assessments are disputable decisions) may be challenged in a Court or in any proceedings except for matters relating to Part * and Part 8A of the Act, which are not applicable here. Section 156 of the Act further provides that the Commissioner may recover any unpaid tax in a Court – including the District Court – not withstanding the amount claimed exceeding the District Court's normal jurisdiction limit.[17] Dealing with the argument that the taxpayer's alleged Maori descent meant that he was not obliged to pay tax, the Judge stated:[22] It suffices to say that the Courts have never accepted arguments that statutes passed by Parliament are not applicable to persons of Mäori descent. Were an authority needed for the proposition that Parliament has not exempted individuals of Mäori descent from obligations relating to tax assessment and payments, Commissioner of Inland Revenue v H [2003] DCR 74 is a clear authority in that regard.[18] On the question of the reasonableness and unfairness in the default assessment system, the Judge concluded:[23] Mr Hardie submitted that if the Commissioner's submission on the operation of the default assessment system is accepted as a matter of law, citizens will be at risk of being liable to pay tax on account of assessments made without the benefit of complete information. [24] On the face of things, this is of course true. Ms Gavin candidly admitted that default assessments are often (at best) informed estimates. But provision must be made for the assessment of tax in the absence of voluntary compliance by the taxpayer through furnishing self-assessed returns. A lack of such mechanism will mean that those not minded to pay tax could simply drag out the process of tax assessment while they "endeavour" to gather more information or supposedly attempt to get their affairs together. [25] The general reasonableness or otherwise of the conduct of the Commissioner (or his delegates) in the course of exercising his powers under s 106 in relation to Mr Hardie is not a matter reviewable by the District Court.Grounds of appeal in High Court[19] The grounds of appeal are summarised in the appellant's notice of appeal. No synopsis or written outline of submissions was presented by the appellant. It has been necessary therefore to endeavour to identify any properly available points of argument from the notice, to which further reference will be made below. [20] The Supreme Court in Austin Nichols & Co Ltd v Stichting Lodestar [2008] 2 NZLR 141 considered the principles applicable to general appeals. Giving the judgment of the Court, Elias CJ stated at [16] that:Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court's opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court's assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.[21] Thus, in a general appeal the appellant has the onus of satisfying the appellate court that it should differ from the decision of the Court below. But the appellate court must come to its own view on the merits: see Austin Nichols at [3] – [5].Concession regarding PAYE[22] First, I deal with the point relating to late filing of PAYE returns. The appellant alleged that he had ceased to employ anyone by the end of March 2004. He further alleged that he had notified the Commissioner in writing of that fact. [23] Without accepting the accuracy of such allegations, counsel for the Commissioner indicated that the Commissioner had decided to give the appellant the benefit of the doubt on the issue and was prepared to reduce the debt by $6,250. In other words, the Commissioner was prepared to concede this issue in favour of the appellant. Thus, counsel acknowledged that the appeal ought therefore to be allowed in part to the extent only of the sum of $6,250, the effect of which would be to reduce the judgment debt to $10,335,160.32. This concession disposed of the point raised in D of the appellant's point on appeal.Exemption from paying tax for person of Maori descent[24] The appellant contended that the Judge was wrong not to uphold his submission based on Maori descent. The notice on appeal claimed at C that:the appellant, being of part Maori descent, is not a person who must compulsorily pay any form of tax to the respondent, no provision having been made for such in the Treaty of Waitangi nor subsequently.[25] In response, counsel for the Commissioner submitted that the Parliament has the right to enact legislation imposing taxes. Such legislation applies to the appellant as it does to all other persons in New Zealand: see Kaihua v Inland Revenue Department [1990] 3 NZLR 344; Rupe v Commissioner of Inland Revenue (2004) 21 NZTC 18,519; Boyton v Commissioner of Inland Revenue (2002) 20 NZTC 17,615;New Zealand Maori Council v Attorney-General [1987] 1 NZLR 641 (CA); andAttorney-General v Ngati Apa [2003] 3 NZLR 643 (CA). [26] As a further point on this aspect of the case, counsel for the Commissioner noted that the appellant had not provided evidence of his whakapapa establishing on the facts that he is of Maori descent.[27] Quite apart from this evidential difficulty, the appellant's submission is legally flawed. Moreover, the appellant put forward no authority binding on this Court to support his extraordinary submission. The District Court Judge was quite correct when he concluded that the Courts have never accepted arguments that statutes passed by Parliament are not applicable to persons of Maori descent. This is particularly so in the case of obligations to pay tax. Such obligations arise under the legislation imposing taxes and axiomatically apply to all New Zealanders, irrespective of race. The exemption claimed by the appellant on the basis of Maori descent cannot succeed.Alleged infringement of the New Zealand Bill of Rights Act 1990 (BORA)[28] This point (mentioned in paragraph B of the points on appeal) raised the issue of whether the decision(s) of the Commissioner "transgress the provisions of ss 9 and 27 of the [BORA]". No submissions were developed by the appellant in support of this point. [29] Counsel for the Commissioner submitted that s 9 of BORA had no application as it deals specifically with the right not to be subjected to torture or cruel treatment. I agree. The point has no merit whatsoever. [30] With respect of s 27 of BORA, counsel for the Commissioner submitted that it had no application in a case where there are clear statutory obligations imposed upon a taxpayer and the taxpayer has failed to fulfil those obligations. In particular, the appellant in this case has failed to furnish returns of income tax or GST, leaving the Commissioner with no alternative but to make default assessments. Counsel further submitted that none of the provisions exempt the appellant from complying with his statutory duty to furnish returns: see in particular s 4 of BORA; Amaltal Fishing Company Ltd v Commissioner of Inland Revenue (2009) 24 NZTC 23,313;Russell v Taxation Review Authority & Anor (2009) 24 NZTC 23,284; Rupe v Commissioner of Inland Revenue; Wire Supplies Limited & Ors v Commissioner of Inland Revenue (2007) 23 NZTC 21,404 (CA).[31] I agree with the submissions advanced on behalf of the Commissioner. The appellant has been unable to demonstrate that the provisions of either s 9 or s 27 of BORA have any application in the circumstances of this case.Intended further application for judicial review[32] In paragraph E of the point on appeal, the appellant stated:The appellant wishes to seek judicial [review] of the respondent's assessments but has been hindered from doing so by the state of financial uncertainty created by the rescinding by Recordon J of a stay decj, such rescinding being made without the opportunity for oral input (as requested) by the appellant and delay caused by the serious illness of a family member which has necessitated, and still necessitates, the appellant taking on the unaccustomed and time-consuming duty of caregiver with resultant decline in earning capacity.[33] The appellant signalled at the hearing that he did not propose to pursue this point. For the time being, he has no intention of preparing and filing a judicial review proceeding against the Commissioner. [34] No doubt the appellant, in so intimating his position to the Court, had read the detailed written submissions filed by counsel for the Commissioner. Such submissions set out a detailed chronology regarding the first application for judicial review filed by the appellant in June 2007. That chronology ended on 24 July 2008 when the appellant filed a notice of discontinuance of the proceeding. [35] The written submissions also referred extensively to the authorities in support of the proposition that judicial review is reserved for exceptional circumstances and that a challenge by way of judicial review in other than exceptional circumstances is an abuse of process: see Westpac Banking Corporation v Commissioner of Inland Revenue (2009) 24 NZTC 23,435 (CA) and Tannadyce Investment Ltd v Commissioner of Inland Revenue (No 2) (2009) 24 NZTC 23,493. [36] During the hearing of the appeal, counsel for the Commissioner raised the possibility of the Court giving a direction that the Registry not accept any further proceeding by the appellant by way of judicial review. Such a direction might wellhave been appropriate in this case, apart from the fact that the appellant clearly indicated that it was not his intention to file a further judicial review proceeding against the Commissioner. On the basis of that indication, no direction is required.Other grounds of appeal[37] In his points on appeal, the appellant at paragraphs F and G raised procedural points, including the possibility of an application for a stay. At the hearing, the appellant accepted that neither of these grounds could be advanced. He made no submissions to support them. [38] There was a further point on appeal at paragraph H as follows:The appellant seeks referral of the question of the applicability of the Treaty of Waitangi to the Supreme Court in the first instance should that be possible as neither party is likely to accept as final a decision of a lower Court, or at least that the question be considered by a full court.[39] Again, the appellant did not pursue this point further. Had he done so, it would have been rejected as being wholly inappropriate.Further evidence[40] At the hearing of the appeal, the appellant sought to adduce fresh evidence in the form of financial schedules for the years 1997 to 2010. This new evidential material was presented in an attempt to support a new point (not mentioned in the points on appeal) that the Commissioner abused his powers by making assessments in respect of tax and GST in respect of the appellant. [41] The appellant accepted that this material was not before the District Court Judge and was not in the casebook for the appeal. Further, no application had been made by the appellant for leave to file further evidence in support of the appeal. [42] The appellant has not met the requirements for adducing fresh evidence on appeal. In any event, such evidence is not directed at an issue raised in the point onappeal. Further, I am satisfied that even if such schedules had been admitted as further evidence and been considered as part of the appeal, the evidence would have made no difference whatsoever.Judge's reliance on Commissioner's assessments[43] The final point raised by the appellant concerned the acceptance by the Judge at [8] of his decision of the assessments made by the Commissioner. In this regard, the appellant referred to a proposition in the case of Commissioner of Inland Revenue v New Zealand Wool Board (1999) 19 NZTC 15,476 (CA). He referred to the fact that the Commissioner is required to exercise an honest judgment in making an assessment and that:To qualify as an assessment, it must represent an honest attempt by the Commissioner to arrive, as best he can on the information available to him, at the amount of taxable income and the amount of tax payable.[44] The difficulty for the appellant with this submission is that it overlooks the fact that, as he conceded during the argument, he did not file the relevant tax returns in relation to the periods for which the Commissioner has issued default tax assessments. Moreover, the appellant failed to exercise his right to challenge those default assessments and failed to commence proceedings challenging the default assessments before the Taxation Review Authority. [45] Counsel for the Commissioner in his written submissions emphasised that the appellant is under a fundamental statutory obligation to determine the amount of tax payable by him under the tax laws and to pay the tax on time: see s 15B(a) and (c) of the Act. Further, the appellant as a self-employed professional person, is required to prepare and file returns of his income by 7 July in each year, but has failed to do so for the income years ended 31 March 1992 to 2005 contrary to the provisions of ss 33, 37 and 40 of the Act. Accordingly, the Commissioner had no choice but to make assessments by default: see s 106 of the Act. As the appellant failed to challenge the default assessments, the assessments are now indisputable and are deemed to be correct: see s 109 of the Act and Allen v Commissioner of Inland Revenue [2006] 3 NZLR 1 (SC).[46] In these circumstances, Counsel for the Commissioner submitted that the attempt by the appellant on appeal to go behind the assessments in question is futile. I agree. The point cannot succeed.Result[47] Apart from the concession made by the Commissioner regarding PAYE, the appellant has not succeeded with any of the grounds raised on appeal. In respect of such grounds, the appeal must therefore be dismissed. [48] However, in the light of the concession made by the Commissioner, the appeal is formally allowed in part to the extent of $6,250, the effect of which is to reduce the judgment debt to $10,335,160.32. [49] In respect of all other grounds, the appeal is dismissed.Costs[50] In his written submissions, counsel for the Commissioner did not seek costs. In case the Commissioner wishes to pursue costs, I simply reserve costs on the basis that, if costs are sought, counsel must file an application within 28 days of the date of judgment. ________________________ Stevens J