Muir v Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: Mallon J
• Judgment Date: 30 April 2018
• Neutral Citation: [2018] NZCA 129
• Docket Number: CA395/2017
• Court: Court of Appeal
• Date: 30 April 2018

Between

Garry Albert Muir

Appellant

and

Commissioner of Inland Revenue

Respondent

[2018] NZCA 129

Court:

Winkelmann, Courtney and Mallon JJ

CA395/2017

IN THE COURT OF APPEAL OF NEW ZEALAND

Civil Procedure, Taxation — appeal against a High Court (“HC”) decision which granted summary judgment in favour of the respondent for unpaid income taxes — Trinity scheme — whether the Associate Judge had jurisdiction to determine the respondent's summary judgment application when the HC had yet to determine whether there were extant challenge proceedings under Part 8A Tax Administration Act 1994 (“TAA”) (challenges)

Counsel:

R B Hucker and J E Tomlinson for Appellant

S J Leslie and G H H Gordon for Respondent

• A The appeal is dismissed.

• B The appellant is ordered to pay costs to the respondent for a standard appeal on a band A basis.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Mallon J)

Introduction

1 Dr Muir appeals a High Court decision of Associate Judge Bell granting summary judgment in favour of the Commissioner of Inland Revenue (the Commissioner) for unpaid income taxes, interest and penalties for the years ended 31 March 1997 to 31 March 2010 totalling $8,179,830.94 (the summary judgment). 1 This appeal is a further step in Dr Muir's extended efforts to challenge the Commissioner's assessments of Dr Muir's tax liability for those years.

2 The assessments arise out of a scheme (known as the Trinity scheme) which Dr Muir designed. Under the scheme Dr Muir invested in a loss-attributing qualifying company, Redcliffe Forestry Venture Ltd (Redcliffe). Redcliffe claimed substantial deductions, under subpart EG of the Income Tax Act 1994 (the Act) (and its successors), that it passed to Dr Muir. Dr Muir offset these deductions against his taxable income. The Commissioner disallowed these deductions. 2

3 Dr Muir's challenges to his income tax assessments for the 1997 to 2010 years were stayed pending the final determination of the legitimacy of the Trinity scheme. This determination proceeded by way of test cases on the Commissioner's assessments for the 1997 and 1998 years for a number of entities and individuals which had invested in the Trinity scheme. Dr Muir was not one of the individuals included in the test cases. The test cases reached the Supreme Court which held the scheme was a tax avoidance arrangement. 3

4 Following that determination, Dr Muir pursued his challenges to the Commissioner's assessments of his tax liability before the Taxation Review Authority (the Authority) and the courts. The present appeal concerns whether the Associate Judge had jurisdiction to determine the Commissioner's summary judgment application when the High Court had yet to determine whether there were extant challenge 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.

6 19 December 2008: The Supreme Court confirmed in a test case the Trinity scheme was a tax avoidance arrangement. 4 The decision concerned the 1997 and 1998 tax years. The deductions had been claimed under subpart EG of the Act (depreciation). The Supreme Court held those deductions satisfied the ordinary meaning of the provisions under which they were claimed. However, the use of those provisions 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 Authority struck out Dr Muir's challenge proceeding for the years 1997–2006. 5 Dr Muir had contended the claimed deductions should have been considered under subpart EH of the Act (financial arrangements). The Authority considered the Supreme Court in Ben Nevis had determined subpart EG applied but the scheme was nevertheless void because it was a tax avoidance arrangement. This decision had finally determined all matters as between the parties to that case and their privies which included Dr Muir. Issue estoppel therefore precluded Dr Muir from challenging the Commissioner's assessments, his challenge proceedings were an abuse of process, and the proper basis on which the deductions should have been considered were moot because the scheme was a tax avoidance arrangement.

8 22 April 2015: In CIV-2011-404-1132, Faire J struck out Dr Muir's proceeding in the High Court challenging the Commissioner's assessment of his income tax for the years 1997 and 2007–2010 (the Commissioner's strike out application). 6 Faire J also dismissed Dr Muir's appeal from the Authority's decision. 7 Dr Muir contended subpart 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 appropriate analysis of the Trinity scheme. This meant there was an issue estoppel as against the parties and their privies. He considered Dr Muir was a privy, as the architect of, and investor in, the scheme and through his control of Redcliffe. As such Ben Nevis was binding on him and his proceeding was an abuse of process.

9 8 December 2015: The Court of Appeal dismissed Dr Muir's appeal from Faire J's decision. 8 Dr Muir contended he was not a privy to the Ben Nevis decision which was for the 1997 and 1998 years. The Court of Appeal disagreed. It held Ben 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 in those proceedings and it was an abuse of process to now attempt to litigate issues which could have been determined in the previous proceeding. For the 1999 and subsequent tax years, it would be an abuse of process to allow Dr Muir to pursue his challenge because he would inevitably fail. That was because, even if the deductions were lawful under subpart EH, the deductions would remain part of a tax avoidance arrangement given the findings in Ben Nevis. 9

10 20 July 2016: The Supreme Court granted leave for Dr Muir to appeal the Court of Appeal's decision on the 1999 and subsequent tax years. 10 The grant of leave was on the question of whether the doctrines of issue estoppel and/or abuse of process operated to prevent Dr Muir from pursuing his subpart EH argument for the 1999 and subsequent tax years. 11 Dr Muir then sought to amend his grounds of appeal. He no longer sought to rely on his subpart EH argument applied to the 1999 and following tax years. He wished to contend he was not prevented from claiming deductions under two other provisions for the 2009 year, nor from challenging the imposition of penalties or the existence of bona fides in any year.

11 26 August 2016: The Supreme Court held Dr Muir had correctly conceded the leave to appeal it had granted should be revoked. This was because Dr Muir no longer wished to pursue his subpart EH argument which had been the subject of the grant of leave. The Supreme Court explained the consequence of this as follows: “[t]he consequence is that the decision of the Court of Appeal will stand, and the appellant's proceedings will remain struck out in their entirety.” 12

12 26 August 2016: In TRA 42/03, 105/04, 23/05, 54/05 and 38/07, Dr Muir forwarded an amended statement of claim to the Authority relating to the 1998 to 2006 income tax years. This pleading raised matters which were said to mean no valid assessments had been made by the Commissioner for those years. 13 The Authority refused to accept the proceeding for filing (because his earlier proceeding had been struck out).

13 29 August 2016: In CIV-2011-404-1132, Dr Muir filed an amended statement of 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 the amended statement of claim for filing. 15

14 14 September 2016: The Commissioner filed in the High Court an application to review the Registrar's acceptance for filing of the amended statement of claim in CIV-2011-404-1132.

15 8 November 2016: Dr Muir filed in the High Court an application for judicial review 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 (dated 7 November 2016) for recall of its 8 December 2015 decision. 16 It considered the merits of the Commissioner's strike out application “have been finally determined by the Supreme Court. This Court is now functus officio.” 17

17 23 June 2017: In the High Court, Associate Judge Bell granted the Commissioner's summary judgment against Dr Muir for $8,179,830.94 being unpaid taxes, interest and penalties for the years 1997 to 2010. It is the appeal from this judgment that is presently before us. Associate Judge Bell held the evidence submitted by the Commissioner proved the amount of the debt claimed. The issue was whether it was due and owing. Dr Muir contended it was not on the basis there had not been a final determination of his tax assessment while he had amended challenge proceedings yet to be determined. Associate Judge Bell held there had been a final determination. More particularly:

• (a) The Commissioner contended the day of determination of final liability of Dr Muir's assessments for the 1997 and 1998 years was 20 July 2016 when 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 liability of Dr Muir's assessment for the 1999–2010 years was 26 August 2016 when the Supreme Court revoked leave to appeal for those years. This meant the 30 days for payment expired on 25 September 2016.

• (c) Dr Muir...