Peebles v Attorney-General
| Jurisdiction | New Zealand |
| Judge | PETERS J |
| Judgment Date | 24 October 2014 |
| Neutral Citation | [2014] NZHC 2635 |
| Docket Number | CIV-2014-404-1196 |
| Court | High Court |
| Date | 24 October 2014 |
In the Matter of the Judicature Amendment Act 1972
and
and
[2014] NZHC 2635
CIV-2014-404-1196
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
Application for judicial review of a decision made by the Commissioner of Inland Revenue to continue proceedings againstthe first plaintiffs, to recover unpaid tax — the applicants were investors in a forestry scheme — the Commissioner issued Notices of Proposed Adjustment in respect of deductions claimed and had begun recovery proceedings — the applicants argued that the Commissioner had a duty not to seek to recover more tax than was properly payable and that the Commissioner failedto have regard to that duty, and so made an error of law, when she refused to discontinue proceedings — whether the Commissioner had a duty not to seek to recover more tax than was properly payable notwithstanding that there were assessments for greater amounts — whether the “collections” phase under the Tax Administration Act 1994 was a new phase within which the Commissioner was required to recalculate the amount claimed.
G J Judd QC for Applicants
R L Roff and S J Leslie for Second Respondent
G J Judd QC, Auckland
JUDGMENT OF PETERS J
The Plaintiffs seek judicial review of a decision made by the Respondent (“Commissioner”) to issue and/or continue proceedings against Mr Peebles and Mr Bradbury, the First Plaintiffs, to recover unpaid tax (“recovery proceedings”).
The Second Plaintiffs (“Ben Nevis” and “Bristol” respectively, and together “the LAQCs”) are Loss Attributing Qualifying Companies. Mr Peebles holds the shares in Ben Nevis and Mr Bradbury the shares in Bristol.
The Commissioner issued the recovery proceedings in December 2013. Their purpose is to obtain judgment, in fact summary judgment, for sums which the Commissioner contends Mr Peebles and Mr Bradbury owe in respect of the 1997 and 1998 income tax years. Mr Peebles and Mr Bradbury are defending the proceedings and opposing the application for summary judgment.
Between February and May 2014, the Plaintiffs made two requests of the Commissioner. The first was that the Commissioner reassess their liability for the 1997 and 1998 years under the accruals rules in subpart EH Income Tax Act 1994 (“accruals rules” and “ITA 1994” respectively), and issue fresh assessments in respect of the same. The second was that the Commissioner discontinue the recovery proceedings until liability had been so reassessed.
On 26 May 2014 the Commissioner decided, and advised the Plaintiffs, that she would not amend the assessments and she would not discontinue the recovery proceedings. The Plaintiffs had already commenced this application for review in anticipation of a forthcoming hearing of the Commissioner's application for summary judgment but on receipt of the Commissioner's response they amended their statement of claim and the hearing followed shortly thereafter.
Although in their statement of claim the Plaintiffs seek review of both the refusal to reassess and the refusal to discontinue, 1 at the hearing they narrowed their
case to seek review only of the refusal to discontinue. 2 This refusal is referred to below as the “collections decision”The essence of the Plaintiffs' case as regards the collections decision is that the Commissioner has a duty not to seek to recover more tax than is properly payable and that the Commissioner failed to have regard to that duty, and so made an error of law, when she made the collections decision.
The Commissioner opposes the application on several grounds. The first is that her decision to pursue or continue proceedings to recover tax is not amenable to review. Secondly, and alternatively, the Commissioner submits that she is not subject to any duty to the Plaintiffs in the nature alleged. Thirdly, and again alternatively, the Commissioner contends that even if a ground of review were made out, the Court ought to decline relief on the ground that this application is another attempt by the Plaintiffs to avoid or delay meeting their obligations.
I record that after the hearing I received further submissions from the parties concerning judgments of the Court of Appeal delivered in August 2014. These were Accent Management Limited v Attorney-General, Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue and Redcliffe Forestry VentureLimited v Commissioner of Inland Revenue. 3 These judgments would be materials if I were required to consider the third submission made by the Commissioner, to which I have referred to in [8] above. It is not, however, necessary for me to consider that third submission, given the decision I have reached.
With others, the Plaintiffs were investors in a forestry venture in the South Island. This scheme has been referred to in other judgments as “Trinity” or the “Trinity scheme” andI shall do likewise. In their returns for the 1997 and 1998 income years investors claimed deductions on account of two expenses — one being a
The Commissioner did not agree that investors were entitled to the deductions claimed and issued Notices of Proposed Adjustment (“NOPAs”) pursuant to Part 4A Tax Administration Act 1994 (“TAA”), as well as assessments of investors' tax liabilities. The Commissioner's assessments in respect of each of the Plaintiffs were issued in 2002 for 1997 and in 2003 for 1998.
The investors (or some of them, including the Plaintiffs) disputed the proposed adjustments and assessments and, in due course, invoked the challenge procedures in Part 8A TAA.
The challenges were unsuccessful in the High Court, and on appeal to the Court of Appeal and Supreme Court (“challenge proceedings”). 4 The Court confirmed the Commissioner's assessments in each instance. The Supreme Court held that, although the deductions that had been claimed fell within the terms of the relevant provisions of the legislation, they were part of a tax avoidance arrangement and consequently void against the Commissioner. 5
The Supreme Court issued its judgment in December 2008. 6 In the intervening period, neither Mr Peebles nor Mr Bradbury has paid the amount for which they were assessed or any additional amount that has accrued.
By letters dated 6 December 2012, the Commissioner made demand for the sum she considered owing from each of Mr Peebles and Mr Bradbury. The Plaintiffs submit that the Commissioner acknowledges in these letters that she has the duty that the Plaintiffs allege. The Commissioner denies any such acknowledgment and I refer to the point again below.
The demands were not met, hence the recovery proceedings. 7
The Commissioner seeks judgment against Mr Peebles for $6,056,192.17. This comprises the liabilities for which the Commissioner assessed Mr Peebles in 2002 and 2003 and additional tax and interest which theCommissioner alleges has accrued. It also takes into account some deductions the Commissioner is willing to allow for the 1998 year and an overstated tax shortfall.
On the face of Mr Peebles' statement of defence, an issue may arise as to whether he received the assessment said to have been rendered in respect of 1997. I am not required to resolve that matter for the purposes of determining this application.
The Commissioner seeks judgment against Mr Bradbury for $1,342,976.99. This likewise comprises the liabilities for which the Commissioner assessed Mr Bradbury in 2002 and 2003, an “under estimation” penalty imposed pursuant to s 140A TAA and interest, again less similar deductions allowed to Mr Peebles.
Between February and May 2014 Wynyard Wood, acting for the Plaintiffs, wrote to Crown Law regarding the recovery proceedings. 8
In summary the letters said:
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(a) The recovery proceedings would be defended on the grounds that the assessments were not, in fact, assessments for the purposes of the TAA. This was said to be because the Commissioner knew that the ITA 1994 required calculation of Mr Peebles' and Mr Bradbury's liabilities by reference to the accruals rules, but had made a deliberate decision to assess on adifferent basis.
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(b)The Commissioner would need to prove that the tax claimed was payable, which the recovery proceedings did not attempt to do.
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(c)At the time of assessing the Plaintiffs' liabilities, the Commissioner had known the accruals rules had “primacy” and the Court of Appeal's recently issued judgment in Sovereign Assurance Company Ltd v Commissioner of Inland Revenue had confirmed this primacy. 9
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(d)The Commissioner was required to determine the amounts payable for collection purposes by reference to the accruals rules.
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(e)The Plaintiffs sought confirmation that the Commissioner would withdraw the recovery proceedings, pending recalculation of their liability under the accruals rules.
On 26 May 2014 the Commissioner advised that:
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(a)she would not amend any of the assessments; and
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(b) she would not withdraw the recovery proceedings or seek judgment for a lesser amount.
The reasons for both decisions were set out in lengthy memoranda enclosed with the Commissioner's letters. Because the Plaintiffs' case depends on the existence of the alleged duty not to collect more tax than is properly payable, it is not necessary for me to examine the reasons the Commissioner...
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