WEBSTER GROUP OF APPELLANTS v THE COMMISSIONER OF INLAND REVENUE [2016] NZCA 31

DRAFT - 26 February 2016 at 12 pmWEBSTER GROUP OF APPELLANTS v THE COMMISSIONER OF INLAND REVENUE [2016] NZCA 31 [29 February 2016]IN THE COURT OF APPEAL OF NEW ZEALANDCA421/2015[2016] NZCA 31BETWEEN WEBSTER GROUP OF APPELLANTSAppellantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 18 February 2016Court: Harrison, Fogarty and Toogood JJCounsel: S R G Judd for AppellantsM Deligiannis and K I S Naik-Leong for RespondentJudgment: 29 February 2016 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants are ordered to pay costs to the respondent as on a standard appeal on a band A basis together with usual and reasonable disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] As long ago as February 2000, following a nine day disputed hearing, the Taxation Review Authority (the TRA) granted the Commissioner of Inland Revenue an extension of time to file cases stated against 28 taxpayers. The case stated is theoriginating pleading which identifies the issues for the TRA's determinationfollowing a taxpayer's notice of objection to the Commissioner's assessment ofliability to tax.[2] In 2002 this Court upheld the TRA's decision, dismissing an application by the objectors for judicial review1 and a subsequent application for conditional leave to appeal to the Privy Council.2[3] The TRA then heard and dismissed the objections to the Commissioner'sassessments. The hearing lasted some 63 days. Numerous challenges to the TRA'sdecision by way of applications for judicial review and appeal were unsuccessful. The process eventually came to an end in 2009.3[4] However, the objectors, which are now the appellants in this Court (collectively Webster), have recently uncovered a new ground of challenge. Webster contends that the cases were stated out of time. Its counsel, Mr Judd, says that this alleged procedural error caused the whole hearing process to misfire, even though the cases were heard and determined on their merits. The TRA's decision was rendered a nullity because the Commissioner's error was, he says, of fundamental importance and is now beyond redemption.[5] In supporting an appeal against a judgment by Ellis J in the High Court dismissing Webster's new challenge,4 Mr Judd acknowledges the result for which he contends may be unpalatable. But, he says, it is the necessary consequence of a recent appreciation that a previously overlooked regulation is decisive against theCommissioner. He acknowledges that Webster's legal advisers did not raise this ground of challenge when the opportunities earlier arose. Nevertheless, he says, there is nothing to prevent Webster from advancing its legal afterthought afresh and undoing all that has gone so comprehensively before.1 M & J Wetherill Co Ltd v Taxation Review Authority [2003] 1 NZLR 577 (CA) [Wetherilljudicial review].2 M & J Wetherill Co Ltd v Taxation Review Authority (2002) 20 NZTC 17,681 (CA) [Wetherillapplication for leave].3 Case Z7 (2009) 24 NZTC 14,088 (TRA).4 Webster Group of Objectors v Commissioner of Inland Revenue [2015] NZHC 1532 [HC decision].[6] It would be strange indeed if the law allowed itself to be brought into serious disrepute, even ridicule, by entertaining Webster's challenge if for no reason other than that the result sought is contrary to settled principles of law formulated to pre-empt it. We are in no doubt that an issue estoppel operates against Webster byvirtue of this Court's 2002 decisions, and accordingly we must dismiss the appeal without addressing the substantive reasoning adopted in the High Court.Statutory framework[7] The TRA's jurisdiction to hear and determine an objection by a taxpayer isfound in s 134 of the Tax Administration Act 1994 (the TAA) as follows:If an objection is not wholly allowed by the Commissioner, the objector may, within 2 months after the date on which notice of the disallowance is given to the objector by or on behalf of the Commissioner, by notice in writing to the Commissioner require that the objection be heard and determined by a Taxation Review Authority, and in that event the objection shall be heard and determined by an Authority, and the Taxation Review Authorities Act 1994 shall apply in respect of the institution, hearing, and determination of the proceedings on the objection.[8] The Taxation Review Authority Regulations 1994 (the TRAR) govern the objection process before the TRA, while the detailed procedural provisions of s 136 of the TAA apply to objections which are heard by leave in the High Court. However, as we shall shortly explain, the High Court never decided to assume jurisdiction so we are not required to consider the terms of s 136 further.[9] The TRA's jurisdiction is invoked by the objector serving the Commissioner with a points of objection notice (commonly known as PON or POON) which by reg 4(1) must be within three months of either:(a) The date of the objector's giving notice requiring that the objection be heard and determined by the Authority; or(b) Such other relevant date as is specified in subclause (3) of this regulation, where either of the parties has unsuccessfully sought tohave the objection referred directly to the High Court [10] By reg 6(1) the Commissioner has three months from the date of service of the PON, or such a further period or periods as allowed by reg 8, to state and sign a case. However, if the Commissioner fails to do so, reg 6(4) allows the objector toapply to the authority for an order directing the Commissioner to allow the objection. In that event the authority:(a) Shall make such an order accordingly, unless it is satisfied that there are reasonable grounds for the failure to file the case:(b) May, where it refuses to make such an order, make such other orders as in the circumstances it thinks fit, whether relating to the filing of the case, or otherwise.[11] Finally, reg 8 authorises the TRA to extend time for filing the case until such time as it thinks fit, subject to reg 8(2):Where application is made for an extension of time more than 2 months after the date for service of the points of objection or the date for filing the case, as the case may be, an order for extension of time shall be made only in exceptional circumstances.Background[12] In this case, as Ellis J noted,5 things began to go awry at an early stage following the Commissioner's decision on 13 December 1995 to disallow Webster'sobjection, and to apply on 19 February 1996 to refer the objection directly to the High Court under s 136(4). On 12 May 1996 Webster served a PON upon the Commissioner. The Commissioner responded by advising that he would be stating a case in the High Court even though he had not applied for leave. Webster requested that a case be stated in the TRA before 12 August 1996; otherwise the company would apply to have the objection allowed under reg 6(4). The Commissioner did state a case on 12 August 1996 but in the High Court even though he had not sought leave to do so. The application for leave was filed on 4 October 1996; and an amended case was stated on 28 February 1997.[13] What happened next was described by this Court in the Wetherill judicial review as follows:6(iii) On 3 March 1997 the application first came before Salmon J at a directions conference. Subsequently there were a series of hearings, Minutes and a judgment of Baragwanath J (of 3 June 1997). In that judgment Baragwanath J expressed the view that the matters would5 HC decision, above n 4, at [73].6 Wetherill judicial review, above n 1, at [16].be better dealt with by the TRA if the TRA had sufficient available time; and the application was adjourned to allow the TRA time to consider whether he could conveniently deal with the objection. We should add that in a subsequent Minute of 13 October 1997 Baragwanath J also observed that to be seized of the objection the TRA would have to grant an extension of time pursuant to reg 8(2) and that the TRA might very well consider that the then presentcircumstances were "exceptional" within the meaning of theregulation.(iv) On 14 July 1997, three months before that last Minute was issued by Baragwanath J, the taxpayer filed an application with the TRA pursuant to reg 6(4) to have the objection allowed in consequence ofthe Commissioner's failure to state and file a case with the TRAwithin the time limits.(v) On 6 November 1997, invoking reg 8, the Commissioner applied to the TRA for an extension of time for filing the case stated.(vi) On 3 February 1998, Baragwanath J declined the taxpayer's application to dismiss the Commissioner's application of 8November 1996 for leave to file a case stated in the High Court. TheJudge adjourned the Commissioner's leave application until 29 June 1998, with leave on seven days' notice to bring that application onearlier. That was done to avoid the risk that the case would fall between the stools of the TRA and the High Court.(vii) Over a period of eight days between 23 February and 4 March 1999 the TRA heard the applications by the taxpayer and the Commissioner (subparas (iv) and (v) above) respectively. On 4 February 2000 the TRA granted the Commissioner's reg 8(2)application extending the time for filing the case to 31 March 2000,and then dismissed the taxpayer's reg 6(4) application (Case U35).(viii) On an unidentified date between 4 February 2000 and 22 March 2000 the taxpayer filed with the TRA a notice of appeal to the High Court against the decision of 4 February 2000 (Taxation Review Authorities Act 1994, s 26(2)). On 22 March 2000 the Commissioner applied to the TRA to have the appeal struck out for want of jurisdiction. On 14 April 2000 the taxpayer applied under s 24(1) to the TRA for a case to be stated by the TRA to the HighCourt. That provision empowers an authority "at any time, before or during the hearing or before delivering the Authority's decision, onthe application of either the objector or the Commissioner or of theAuthority's own motion, [to] state a case for the opinion of the HighCourt on any question of law arising in any proceedings before theAuthority".(ix) On 9 June 2000 the TRA dismissed the taxpayer's application for acase stated and, on the Commissioner's application, struck out thepurported appeal (Case U41).(x) The taxpayer brought proceedings for judicial review of the decisions of the TRA of 4 February 2000 and 9 June 2000 on whichO'Regan J gave judgment on 9 May 2001 (reported at [2001] 3 NZLR 827).[14] As this narrative confirms, while the Commissioner filed a case stated there on 12 August 1996, the High Court never determined the Commissioner'sapplication for leave to refer the hearing of Webster's objection to that Court. The High Court proceeding simply remained in indefinite and unexplained limbo. Baragwanath J took the last step on 3 February 1998, adjourning the Commissioner'sapplication for leave to file a case stated until 29 June 1998. But nothing further apparently happened.[15] Significantly, however, Baragwanath J's 3 February 1997 minute records advice from Webster's counsel that, if the TRA assumed jurisdiction, it would be necessary for the Commissioner to apply for an extension of time to file a case stated there under reg 8(2). That was and remained throughout the following years Webster's principal ground of procedural challenge before the TRA, the High Court and this Court. Its legal basis was that the Commissioner had failed to make out exceptional circumstances under reg 8(2) justifying an extension of time.[16] In any event, as we have noted, Webster invoked the TRA's jurisdiction on 14 July 1997 by applying to have its objection allowed because the Commissioner had failed to state cases within the prescribed limits. On 4 February 2000 the TRA heard and dismissed its objection and granted the Commissioner an extension of time. In 2002 this Court in Wetherill decided that the TRA did not err in granting theCommissioner's application for an extension of time.7 Webster's substantive challenges were heard and determined in accordance with the cases then stated by the Commissioner.[17] At a relatively recent time, but long after the substantive proceedings were effectively determined, a member of Webster's legal camp formed the view that the Commissioner had failed to follow the correct procedural requirements. Webster invoked a new argument, based upon reg 4(3), that the Commissioner was out of time in filing a case stated in the TRA from 12 August 1996, being three months after Webster served its PON. As we have noted, the Commissioner filed cases in7 Wetherill judicial review, above n 1, at [43].the High Court on that date. In essence Webster's proposition is that the wholehearing process was a nullity because the Commissioner filed his originating pleading in one forum instead of another.[18] By reg 4(3), these timing directions apply if either the Commissioner or the objector has unsuccessfully applied to have the objection referred directly to the High Court. The objector is required to serve the PON on either:(a) The date on which the objector gave notice in writing to the Commissioner desiring the stating of a case for the High Court, where the objector gave such notice; or(b) Such date as may be agreed between the Commissioner and the objector, where it was the Commissioner who sought the direct referral of the objection to the High Court (being a date not earlier than that on which the Commissioner notified the objector of the Commissioner's intention to seek referral to the High Court); or(c) Such other date as may be specified by the High Court when declining leave for the objection to be heard and determined by that Court.[19] By reg 4(4):If the objector fails to serve on the Commissioner the points of objection within the 3-month period referred to in subclause (1) of this regulation, or within such further period as may be allowed under regulation 8 of these regulations, the objection shall be deemed to be withdrawn and the Commissioner shall not be required to take any further steps in relation to the objection.[20] On 13 November 2013, at Webster's request, the TRA stated a case for the High Court's determination under s 26 of the Taxation Review Authorities Act 1994. A total of 13 questions was formulated. Ellis J decided all questions in the Commissioner's favour. Webster appeals only her finding on the first question,namely:8Should the objections of the Webster group of objectors be allowed because the Commissioner should not have been granted an extension of time to file the cases in the [TRA]?8 HC decision, above n 4, at [45].[21] Ellis J considered this question by particular reference to reg 4(3) and concluded:9In terms of the question whether the Webster group's objections should have been allowed because the Commissioner should not have been granted an extension of time to file the cases in the TRA, the answer is: "No. TheCommissioner did not need an extension of time; the objections should nottherefore have been allowed on that ground."[22] The Judge's ratio was:[91] In my view the correct process in the present case would have been as follows:(a) on receipt of Mr Russell's notice under s 134 (in February 1996) the Commissioner should immediately have notified Mr Russell that he wished to have the objection referred directly to the High Court under s 136(3);(b) as soon as the Commissioner was advised that the objector did not consent to a direct referral, he should have applied to the High Court for leave;(c) the objector's PON should have been served on theCommissioner within three months from the giving of notice under s 134 (ie February 1996). This in fact occurred;(d) no case should have been stated in the High Court by the Commissioner because there was no requirement for him to do so prior to the grant of leave;(e) the application for leave should have been dealt with by this Court decisively and promptly;(f) in the decision declining leave the Court should have set a date pursuant to reg 4(3);(g) the objectors should have re-served their PON by that date and time limits for the Commissioner stating a case in the TRA would then have been activated; and(h) the Commissioner should have stated a case within time.[92] No application for an extension of time would therefore be required.[93] No date was, of course, set by this Court under reg 4(3) when leave was declined. Indeed it remains unclear to me whether leave was ever formally declined.9 At [99].[23] In short, on the Judge's view, the date on which Webster was bound to serve its PON under reg 4(3) was never formally triggered; and so the time limit for the Commissioner to state cases in the TRA never started to run.Decision(a) Res judicata[24] The obvious answer to Webster's appeal is that the TRA should not have stated in 2013 the same question which had been finally determined in 2002 and the High Court should have declined to answer it. The doctrine of estoppel per rem judicatum applied.[25] In Wetherill this Court determined that the TRA did not err in granting theCommissioner's application under reg 8(2) for an extension of time until 31 March 2000 to file the cases:10[43] In the result we are not persuaded that the TRA erred in grantingthe Commissioner's reg 8(2) application extending the time for filing the case to 31 March 2000 and then dismissing the taxpayer's reg 6(4)application. In that regard the circumstances subsequent to the expiry of the extra two months under reg 8(2) have to bear on the failure to file the case stated within that time or on the exercise of the discretion under that regulation. But we do not understand the TRA to have held otherwise.[26] It is beyond contest that this Court's decision in the Wetherill judicial review was final, and pronounced by a judicial tribunal of competent jurisdiction over the parties to the subject matter of the litigation — that is, whether the TRA erred in granting the Commissioner an extension of time to file cases stated. That is the very question which the TRA stated again for the High Court in 2013. Nor is it contested that Webster and the other taxpayer appellants were parties or privy to the litigation before this Court. It follows that they are estopped from disputing or questioning the decision in Wetherill. A plea of estoppel per rem judicatam is available to the Commissioner.1110 Wetherill judicial review, above n 1.11 Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 266.[27] Moreover, in Wetherill this Court proceeded on that very same premise advocated by Mr Judd before us that the three month time period for the Commissioner to state cases expired on 12 August 1996.12[28] Counsels' written synopses of submissions did not address res judicata. However, on inquiry Ms Deligiannis drew our attention to Ellis J's observation that res judicata was the Commissioner's starting point in the High Court.13 The Judge dismissed the defence. In her view some statements made in the judgments in the Commissioner's favour (presumably she was referring to the Wetherill decisions) were obiter and the decisions were per incuriam because they had not considered reg 4.14[29] The Judge's conclusion was a bold one but, in our view, wrong. It was adopted by Mr Judd before us. However, the scope of res judicata is well settled: the parties to a decision are estopped from later questioning the decision on its merits"even though the decision may be wrong".15 As the same Judge emphasised later ina higher forum, "the doctrine comes into its own only when the decision is wrong".16[30] Mr Judd conceded that Webster could have raised its current argument based on reg 4 when the TRA determined the question in 2000. Res judicata is founded on the principle that parties cannot be allowed to relitigate an issue by raising a new ground which was available when the question was originally determined. Public policy requires finality in litigation and opposing parties should not be put to the cost and inconvenience of litigating the same question twice.17[31] Mr Judd sought to escape the doctrine's rigour by another route. He submitted that the question was originally determined by the TRA on an application for judicial review whereas this proceeding arises on an appeal. This is a distinction without a substantive difference, and was answered by Ms Deligiannis' reference to12 Wetherill judicial review, above n 1, at [35].13 HC decision, above n 4, at [47].14 At [48].15 Crown Estate Commissioners v Dorset County Council [1990] Ch 297 (EWHC) at 305 per Millett J.16 Mulkerrins v Pricewaterhouse Coopers [2003] 1 WLR 1937 (HL) at 1941 per Lord Millett.17 Muir v Commissioner of Inland Revenue [2015] NZCA 591, (2015) 27 NZTC 22-034 at [19].Richardson P's statement in this Court's decision in Wetherill dismissing the conditional leave application:18[9] The short answer is that this court has already held that the Taxation Review Authority did not err in granting the Commissioner's reg 8(2) application extending the time for filing a case to 31 March 2000 and then dismissing the taxpayer's reg 6(4) application (para [43]). Mr Judd submitted that a rejection of an administrative law challenge to a decision under reg 6(4) and reg 8 could not determine a general appeal on the merits under s 26. The tests, he said, are different. They are. But in some circumstances the two inquiries in the factual area may so overlap that the same decision would have to be given whichever route is chosen. Indeed, Mr Beck submitted that in some circumstances to pursue one route after failing in the other would be an abuse of process. In the present case the crucial issue is whether on the facts there are reasonable grounds for not filing the case stated within the specified term. In administrative law terms the question is whether the decision was irrational or Wednesbury unreasonable in this class of case. In challenging the exercise of a discretion on appeal under s 26, it is whether the decision was plainly wrong. In context in these circumstances we cannot see any room for different factual conclusions on judicial review or appeal.[32] Alternatively, a cause of action estoppel operates against Webster. All the parties' rights and obligations have been concluded by the earlier judgments determining questions of law as well as findings of fact.19 Between 1999 and 2005 the TRA heard 65 cases involving the same standard template at issue in the Webster proceeding.20 The Privy Council has concluded that the arrangements made by theobjectors were "a plain case" of tax avoidance.21[33] Ellis J may have been correct that the Commissioner did not breach the three month time requirement imposed by reg 4(3) and thus did not require leave to state cases. However, that was not the question before her. The question was limited to whether the TRA erred in granting an extension of time. The question was not whether it was legally necessary for the Commissioner to obtain leave.[34] Dismissal of the decision in Wetherill as per incuriam could only have been justifiable if this Court had ignored the allegedly contradictory effect of reg 4, such that the decision itself is of no effect and should not be followed. However, it is18 Wetherill application for leave, above n 2.19 Shiels, above n 11, at 266.20 Russell v Taxation Review Authority [2011] NZCA 158, [2011] NZAR 310 at [6].21 Miller v Commissioner of Inland Revenue [2001] UKPC 17, [2001] 3 NZLR 316 at [9].plain that even if the Judge's own analysis is correct, reg 4 did not contradict the result in Wetherill; on her view it simply rendered the Commissioner's application unnecessary.(b) Exceptional circumstances[35] We add that, if we had accepted Mr Judd's argument that the Commissioner was unable to invoke the principle of res judicata and was and had throughout since 12 August 1996 been in breach of reg 4 in failing to state cases, we would have found exceptional circumstances under reg 8 justifying an extension of time to state the cases until the date of our decision.[36] Mr Judd submits that this course is not open as (a) the TRA did not enjoy a general discretion to act in the interests of justice or as equity and good conscience required or to take into account the overall circumstances of the case; (b) the TRA is subject to a mandatory direction emphasising the absolute requirement for exceptional circumstances before an order for extension can be made; and (c) all the circumstances leading to the Commissioner's delay were within the Commissioner'scontrol and the result of a failure to understand his own regulations, a situation that could never be classified as exceptional.[37] Mr Judd's submission proceeds on the premise that once the High Court had decided the proceeding should be heard in the TRA the Commissioner erred in failing to apply to the High Court under reg 4(3) to set a new date to serve the PONs. But this premise was factually incorrect. The High Court did not decide the TRA should hear the case. We repeat that the High Court never determined the issue. As Ellis J pointed out, none of the preconditions to invoking reg 4(3) had occurred: (a) Webster did not ask the Commissioner to state a case for the High Court; (b) the parties had not reached agreement on a date; and (c) the High Court never declined the Commissioner's application for leave. Webster's new argument wasmisconceived.[38] In any event we reject Mr Judd's submission that the Commissioner could not show exceptional circumstances. As this Court has previously held, exceptionalcircumstances are unusual circumstances, those which are outside the common run.22Mr Judd's submissions were built around a more prescriptive test. But asMs Deligiannis pointed out, the authorities he cited were decided on s 138D of the TRA, which itself sets out a detailed list of factors to be satisfied before the exceptional circumstances exemption applies.23 By contrast the test of exceptional circumstances in reg 8 is broad and unfettered.[39] In considering whether exceptional circumstances existed, we are entitled to take into account the circumstances occurring after expiry of the extra months provided by reg 8(2).24 We are in no doubt that unusual, atypical or special circumstances applied here when everything that has occurred since 12 August 1996 is taken into account. Among other things:(1) In its originating decision the TRA found the existence of exceptional circumstances, upheld by this Court in Wetherill.(2) The High Court was principally responsible for the state of uncertainty and indecision which beset the Commissioner'sapplication to have the proceeding heard in the High Court. Neither party is responsible for the High Court's failure to determine the application instead of adjourning it indefinitely. Mr Judd submitted that the Commissioner should have taken steps to enforce a resolution in that court. But Webster itself took that step and its application to strike out was dismissed, before the Commissioner's application wasadjourned to a fixed date but never pursued by either party.(3) As noted, Webster's own counsel contributed significantly to the jointly held view that the Commissioner required leave under reg 8 and never suggested that reg 4 may apply.22 Wilkins & Field Ltd v Fortune [1998] 2 ERNZ 70 (CA) at 76. The formulation of exceptionalcircumstances as "unusual, outside the common run" was endorsed in Creedy v Commissioner of Police [2008] NZSC 31, [2008] 3 NZLR 7 at [31]–[32].23 Commissioner of Inland Revenue v Fuji Xerox Ltd (2002) 20 NZTC 17,470 (CA).24 Wetherill judicial review, above n 1, at [35]–[36] and [43].(4) As Baragwanath J's minute dated 13 October 1997 records, Webster'sown counsel was concerned that if the Commissioner's applicationwere dismissed the parties would be in a position of limbo since the TRA had not yet assumed jurisdiction.(5) The Commissioner stated cases for all 28 taxpayers which were subsequently heard and determined on their merits. As Ellis J noted, the essential elements of the statutory process have been met.25[40] It would be artificial, even absurd, to ignore in an inquiry into exceptional circumstances all that has occurred since the cases were actually stated. Mr Judd protested against Ellis J's characterisation of Webster's argument as an invitation "to engage in an exercise of arid formalism that wholly disregards the reality of the last 15 years".26 However, it is not unfair to observe that Mr Judd's argument suffered from a defining failure to appreciate the purpose of procedural regulations; that they do not exist as an end in themselves but are designed to facilitate the timely, fair and efficient determination of substantive disputes. Mr Judd does not suggest that theCommissioner's alleged delays in complying with time limits caused defects in the cases stated or that Webster and the other taxpayers were in any way prejudiced or disadvantaged by delays.[41] In summary, we are satisfied that the TRA should never have stated a case for the High Court which included Question 1 because that question had been determined by this Court in 2002; and that the High Court should have declined to answer it. In any event we are satisfied that if the Commissioner was out of time in stating cases exceptional circumstances exist which would justify granting an extension.Result[42] The appeal is dismissed.25 HC decision, above n 4, at [98].26 At [97].[43] The Webster Group of appellants are ordered to pay costs to the Commissioner as on a standard appeal on a band A basis together with usual and reasonable disbursements.Solicitors:Ladbrook Law Limited, Auckland for Appellants