Redcliffe Forestry Venture Ltd and Ors v The Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: Venning J
• Judgment Date: 26 February 2010
• Neutral Citation: [2010] NZHC 176
• Docket Number: CIV-2009-404-005991
• Court: High Court
• Date: 26 February 2010

[2010] NZHC 176

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2009-404-005991

And Between

Redcliffe Forestry Venture Limited

First Plaintiff

and

Garry Albert Muir

Second Plaintiff

and

Accent Management Limited

Third Plaintiff

and

Bristol Forestry Ventures Limited

Fourth Plaintiff

and

Ben Nevis Forestry Ventures Limited

Fifth Plaintiff

and

Lexington Resources Limited

Sixth Plaintiff

and

Clive Richard Bradbury

Seventh Plaintiff

and

Gregory Alan Peebles

Eighth Plaintiff

and

The Commissioner of Inland Revenue

Defendant

Counsel:

A J Forbes QC for First, Second, Third and Sixth Plaintiffs

R B Stewart QC for Fourth, Fifth, Seventh and Eighth Plaintiffs

T G H Smith and J D Kerr for Defendant/Applicant

JUDGMENT OF Venning J

Introduction

1 In a judgment delivered on 20 December 2004 1 this Court held that a forestry investment structure known as “the Trinity scheme” was created for the dominant purpose of tax avoidance. That finding was subsequently upheld by the Court of Appeal 2 and the Supreme Court. 3

2 The Trinity scheme was designed by the second plaintiff. The other plaintiffs to this proceeding invested in it. Immediately following delivery of the Supreme Court decision the third plaintiff (acting as a representative of the other plaintiff investors) commenced judicial review proceedings in this Court seeking a declaration that the assessments considered by the Courts were not valid assessments. The plaintiffs allege that the Commissioner disregarded known law and did not have jurisdiction to assess them for tax in the way he did. The Commissioner applied to strike out those review proceedings. That application is the subject of a reserved decision of Keane J.

3 Subsequently the plaintiffs initiated these proceedings. They seek to have the judgment of 20 December 2004 set aside on the basis the Commissioner presented a false case to this Court.

4 The Commissioner entered a protest to jurisdiction and has applied to dismiss the proceeding on the basis that this Court has no jurisdiction to hear and determine it: r 5.49 High Court Rules.

Preliminary matter

5 Throughout the statement of claim, including on the original intituling, the plaintiffs refer to the Court sitting as a Hearing Authority when it first considered the

challenge to the Commissioner's assessments and found the Trinity scheme to be tax avoidance. The reference is based on the provisions of the Tax Administration Act 1994 (TAA) but it is conceptually flawed. The TAA provides for challenges to be heard by a hearing authority. Section 3 provides:

hearing authority means—

• (a) A Taxation Review Authority; or

• (b) The High Court:

6 But when the challenge is heard, it is heard, either by the Taxation Review Authority, or the High Court. The provisions of the TAA do not reconstitute the High Court as a Hearing Authority, rather, the relevant provisions of the TAA confirm that cases required by the Act to be heard by a Hearing Authority can be heard by either the Taxation Review Authority or the High Court. In this particular case the challenges were transferred to the High Court by s 138Q(2) of the TAA. The decision on the challenges was a decision of the High Court. The appeal pathway under s 66 of the Judicature Act 1908, invoked by the plaintiffs in this case, was only available because the decision was a decision of the High Court.

The parties' cases

7 During the course of his submissions, which were adopted by Mr Stewart, Mr Forbes confirmed that the plaintiffs' claim in these proceedings is based on two grounds:

• a) first fraud, in that the Commissioner presented a false case to the Court; and

• b) second, that there was no lawful basis for the assessments which had been confirmed by this Court, so that this Court had acted without jurisdiction.

The nature of the application

8 Mr Stewart submitted that, on the authority of Shannon v Shannon, 4 the Commissioner's challenge to jurisdiction was misconceived. He submitted Shannon confirmed the established authority that the Court has inherent jurisdiction to prevent abuses of its processes, and must have jurisdiction to set aside a judgment based on a false case or where the judgment was contrary to law. He supported Mr Forbes' submission that the form of the pleading could not be a matter going to the Court's jurisdiction.

9 In Shannon, the application to strike out was brought on the ground there was no jurisdiction for the High Court to consider the fresh proceeding because the issue between the parties had been subject to determination by both the Court of Appeal and Privy Council. The Commissioner's objection to jurisdiction in the present case is, however, rather more subtle. The Commissioner accepts, in principle, that jurisdiction exists to bring a fresh proceeding to set aside an existing judgment on the basis of fraud even if the original judgment has been subject to an appeal process. The Commissioner's objection to jurisdiction and application to dismiss is on the basis that the jurisdiction is limited to cases that allege and prove fraud and the plaintiffs pleadings do not allege or raise fraud. The allegation of a false case, as pleaded, is insufficient. The Commissioner says that absent a proper pleading of fraud or a sustainable pleading that the judgment is a nullity, there is no jurisdiction for this Court to revisit its earlier judgment. It remains functus officio.

The issues for the Court

10 The first issue is whether the plaintiffs, by their pleading, properly construed, seek to set aside the initial judgment on the basis it was obtained by fraud.

11 The second and related issue is the plaintiffs' argument the judgment is a nullity. If the judgment was obtained by fraud, then it is to be regarded as a nullity. That follows as a consequence of the fraud. But the plaintiffs go further and argue

that there was no lawful basis for the assessments and thus the judgment confirming them and finding the Trinity scheme was tax avoidance was a nullity for lack of jurisdiction.

Do the pleadings disclose an allegation of fraud?

The finality principle

12 The starting point is the principle of finality in litigation. It is in the interest of the State and parties that there be finality in litigation: Lockyer v Ferryman, 5 as confirmed in Shiels v Blakely. 6 Related to the principle of finality, is the principle that the trial Court is functus officio once its decision has been finally recorded or overtaken by the processes in superior courts: R v Nakhla (No 2). 7 Prima facie, it will generally not be appropriate for a trial court to recall its judgment or order a new trial, once appeals have been taken (and determined) because for the recall or order for new trial to have effect, it would have to amount to a recall of the judgments of the superior court(s): Hikuwai v Sanford Limited; 8UDC Finance Ltd v Madden; 9Collier v Creighton. 10

Exceptions to the finality principle

13 The principle of finality is not, however, absolute. While the Court of Appeal in R v Smith11 confirmed the principle, the Court also recognised exceptions. In delivering the judgment of the Court Elias CJ said:

[48] The need for finality is based upon the policies identified by Lord Wilberforce in The Ampthill Peerage [1977] AC 547 at p 569 as “the interests of peace, certainty and security”:

“For a policy of closure to be compatible with justice, it must be attended with safeguards: so the law allows appeals: so the law, exceptionally, allows appeals out of time: so the law still more exceptionally allows judgments to be attacked on the ground of fraud: so limitation periods may, exceptionally, be extended. But these are exceptions to a general rule of high public importance, and as all the cases show, they are reserved for rare and limited cases, where the facts justifying them can be strictly proved.”

Lord Simon of Glaisdale at p 576 made the same point:

“But the fundamental principle that it is in society's interest that there should be some end to litigation is seen most characteristically in the recognition by our law – by every system of law – of the finality of a judgment. If the judgment has been obtained by fraud or collusion it is considered as a nullity and the law provides machinery whereby its nullity can be so established. If the judgment has been obtained in consequence of some procedural irregularity, it may sometimes be set aside. But such exceptional cases apart, the judgment must be allowed to conclude the matter.”

[49] As both judgments make clear, the safeguards for fallibility in judgment require the use of the machinery provided by law: appeal or application to set aside the judgment which must be on grounds strictly made out even where a decision can be characterised as a “nullity”. Such defeasibility is an exception to the policy of finality and certainty. It is not self-achieving. It must be formally accomplished by a Court with the power to set aside or amend. That is the approach adopted in the cases cited above at paras [47] – [48] where the inherent power to revisit an invalid determination has been exercised.

14 Fraud is thus a genuine, albeit limited, exception to the important principle of finality of litigation.

15 In Shannon v Shannon12 the Court of Appeal again expressly recognised the fraud exception referred to in The Ampthill Peerage. But the Court also went on to emphasise that stringent requirements must be met before a judgment can be set aside on the basis of fraud: 13

There is no doubt that fraud is an exception to the principle of finality of judgments but, because of the strength of the policy grounds for requiring judgments to be final, there are stringent requirements that must be met...