Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd

JurisdictionNew Zealand
CourtSupreme Court
JudgeMcGrath J,Elias
Judgment Date09 November 2012
Neutral Citation[2012] NZSC 94
Date09 November 2012
Docket NumberSC 8/2012

[2012] NZSC 94

IN THE SUPREME COURT OF NEW ZEALAND

Court:

Elias CJ, Tipping, McGrath, William Young and Gault JJ

SC 8/2012

BETWEEN
Commissioner Of Inland Revenue
Appellant
and
Redcliffe Forestry Venture LTD
First Respondent
Garry Albert Muir
Second Respondent
Accent Management Ltd
Third Respondent
Lexington Resources Ltd
Fourth Respondent
Bristol Forestry Venture LtD
Fifth Respondent
Ben Nevis Forestry Ventures Ltd
Sixth Respondent
Clive Richard Bradbury
Seventh Respondent
Gregory Alan Peebles
Eighth Respondent
Counsel:

B W Brown QC, T G H Smith and J D Kerr for Appellant C G Gudsell QC for First and Second Respondents

M S Hinde for Third and Fourth Respondents

R B Stewart QC and N S Gedye for Fifth, Sixth, Seventh and Eighth Respondents

Appeal from a CA decision which held that the HC did not have jurisdiction under r5.49 High Court Rules (“HCR”) (appearance and objection to jurisdiction) to strike out a proceeding – respondents had unsuccessfully applied to the HC to set aside an SC judgment which held an investment scheme they were involved with was a tax avoidance arrangement – respondents alleged the appellant had fraudulently concealed from the Court, the existence of a legislative provision which applied to the scheme in earlier proceedings – appellant had filed an objection under r5.49 HCR and applied for orders to dismiss the claim on the ground the HC's decision was final and could not reopened – CA held r5.49 HCR was limited to protests to jurisdiction in the strict sense and therefore did not apply and that the objection should have been brought by way of a strike out application – whether r5.49 was limited to protests to jurisdiction in the strict sense– whether the respondents had raised an arguable exception to the rules concerning the finality of judgments.

The issues were: whether the Commissioner's challenge to the claim was appropriately brought under r5.49 HCR; and whether Redcliffe had raised a tenable case under the fraud exception to finality of judgments.

Held: The CA had concluded that, in dealing with the Commissioner's application as an objection to jurisdiction under r5.49 the HC had fallen into the error of confusing the HC's power to grant relief by setting aside the 2004 judgment, with its jurisdiction to hear and determine the setting aside proceeding. In formulating its test for when r5.49 could be invoked, the CA had placed reliance on its judgment Doug Hood Ltd v Gold and Resource Developments (NZ) Ltd.

In that case, the appellant applied under the previous r131 HCR (appearance under protest to jurisdiction) seeking to have dismissed for lack of jurisdiction, an application brought by the respondent under the Arbitration Act 1996 (“AA”) for leave to appeal against an interim award). The CA held that the HC had been given jurisdiction by Parliament to determine if leave to appeal should be granted under the AA.

In Doug Hood Ltd, the appellant had argued that the HC had no jurisdiction to determine whether it had power to entertain the application for leave to appeal. That was not the argument advanced by the Commissioner in the present case. The Commissioner had accepted that the HC had the threshold power to determine the limits of its jurisdiction in relation to Redcliffe's proceeding and sought that it do so. What the Commissioner contended was that the HC was no longer competent to deal substantively with the Redcliffe claim because the 2004 judgment had been confirmed on appeal.

The CA had erroneously seen the present case as being on all fours with Doug Hood Ltd. The CA had therefore not addressed that argument. Had it done so, it would almost certainly have recognised that the Commissioner's objection to the HC's jurisdiction fell within one of the categories of cases to which, on the test which the CA had itself formulated, r5.49 HCR applied. The Commissioner had asserted that Redcliffe's challenge to the HC's 2004 judgment could only be determined by the SC because Redcliffe had challenged the correctness in law of the judgment. The Commissioner's application was accordingly directed to the competence of the HC to decide the dispute, which was held in Doug Hood Ltd to be a proper function of r5.49 HCR.

Further, the CA's view of the scope of what could be addressed in an objection to “jurisdiction” under r5.49 was too restricted. The CA said that the rule was limited to three situations, namely whether the matter was extraterritorial, whether it could only be addressed by a different NZ court/authority and whether the operation of a contractual term or statutory provision precluded the HC from having jurisdiction.

Although each of these situations was clearly covered by r 5.49, it was not easy to read the rule as limited to them as it expressed an unqualified right to challenge a court's jurisdiction to hear and determine a proceeding. The better approach was to give r5.49 HCR its ordinary meaning.

The principle of finality in litigation gave rise to a rule of law that made conclusive final determinations reached in the judicial process. The rule reflected both the public interest in there being an end to litigation and the private interest of parties to court processes in not being subjected to vexatious relitigation. The rule recognised, however, that a policy of absolute finality was unsafe. It accommodated exceptional situations by allowing final determinations to be revisited but within prescribed limits. Limitations on the exceptions ensured that they did not subsume the general rule of finality and conclusiveness of judgments.

In cases brought under the fraud exception, only fraud in the strict legal sense would suffice: equitable fraud or lack of frankness did not qualify. In NZ, the CA had confirmed that claims based on suspicion were not allowed and had said that the fraud alleged must go to the heart of the judgment ( Shannon v Shannon). To ensure these requirements were all met in any fresh proceeding challenging the finality of a judgment on this ground, the law set strict requirements as to pleading in a case brought under the fraud exception.

Where a party against whom a judgment had been entered alleged that it had been obtained by fraud, the appropriate procedural course was to commence a separate proceeding seeking to have the judgment set aside. That was because cases invoking the fraud exception alleged there had been dishonesty, usually involving perjury, in the evidence given at trial which had deceived the trial court into making erroneous determinations of fact. The claim of fraud had to be fully and precisely pleaded and particularised and of sufficient apparent cogency that it should go to trial.

Sometimes a defendant's objection to the HC power or authority to try a claim would be directed to whether the plaintiff had pleaded a cause of action that was capable of displacing the finality and conclusiveness of an earlier judgment. In such a case the objection was to the Court's jurisdiction and could properly be brought under r5.49 HCR. In other cases, the objection was concerned with questions of adequacy and cogency of a pleading which were more appropriately addressed in r15.1 HCR. There was clearly an overlap between the two rules. It would often be convenient to apply under both. There was nothing in either rule that prevented that.

The fraud exception to the finality of judgments did not apply to legal errors allegedly made in the reasons for judgment, even if a party's conduct allegedly contributed to the making of the alleged error. It was clear that Redcliffe was directly challenging the conclusions of the SC on matters of law which it was competent to address. This was not a case which rested on an allegation of fraud involving perjury or dishonest suppression of evidence bearing on findings of fact which were the primary responsibility of the HC as the trial court.

The HC did not have power to recall or set aside judgments on questions of law which had been the subject of appellate decision.

Further, where the fraud exception to finality was properly invoked, the party challenging the judgment should be able to show that his or her ability to mount an effective case was compromised by the fraudulent conduct of the other party. It was this consideration which provided the rationale for not insisting on finality. But this rationale was not applicable in the present context. Redcliffe could not credibly claim that the litigation strategy attributed to the Commissioner compromised its ability to mount an argument as to the subpart's applicability. Subpart EH IA was there to be seen in the legislation and was thus inherently incapable of concealment. The potential applicability of the subpart was signalled in the Notice of Proposed Adjustment; so it was not concealed. Redcliffe's counsel at the HC trial were all well aware of the potential applicability.

Redcliffe argued in its written submissions that the nullity of a judgment is a further exception to the principle of finality and conclusiveness. The nullity contention rested on two propositions:

  • (a) The true legal position was that the case was governed by subpart EH; and

  • (b) The failure to apply it deprived the HC of jurisdiction to confirm the assessment.

Proposition (a) was the proposition that underpinned the allegation of fraud. It was subject to the same objection, namely it challenged the conclusions of the SC on a matter of law, which it was competent to address. The HC had no power to recall or set aside its judgment on the questions of law which had been the subject of appellate decision.

Redcliffe's error in commencing a fresh proceeding in the HC on the correctness of the legal conclusions of the SC was one that went to the HC's jurisdiction because what Redcliffe had alleged did not constitute a case capable of leading the HC to set aside the 2004 judgment. The HC accordingly lacked jurisdiction to determine...

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