Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: Stevens,Wild JJ
• Judgment Date: 14 December 2011
• Neutral Citation: [2011] NZCA 638
• Docket Number: CA152/2010 CA204/2010
• Court: Court of Appeal
• Date: 14 December 2011

Between

Redcliffe Forestry Venture Limited

First Appellant

and

Garry Albert Muir

Second Appellant

and

Accent Management Limited

Third Appellant

and

Lexington Resources Limited

Fourth Appellant

and

Bristol Forestry Venture Limited

Fifth Appellant

and

Ben Nevis Forestry Ventures Limited

Sixth Appellant

and

Clive Richard Bradbury

Seventh Appellant

and

Gregory Alan Peebles

Eighth Appellant

and

Commissioner of Inland Revenue

Respondent

and

[2011] NZCA 638

Court:

Chambers, Stevens and Wild JJ

CA152/2010 CA204/2010

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from High Court decision dismissing an application seeking to set aside a judgment for want of jurisdiction — Commissioner of Inland Revenue (“CIR”) regarded appellants (“As”) forestry investment scheme as tax avoidance scheme — HC, CA and SC upheld CIR's position — As applied to have HC decision set aside — As claimed judgment obtained by fraud — CIR filed a protest to jurisdiction and made an application for an order dismissing As application under r5.49 High Court Rules (“HCR”) (appearance and objection to jurisdiction) — whether HC had jurisdiction to hear and determine proceeding under r5.49.

Counsel:

M S Hinde for First, Third and Fourth Appellants

G A Muir, Second Appellant in person

R B Stewart QC for Fifth, Sixth, Seventh and Eighth Appellants

T G H Smith and J D Kerr for Respondent

A The appeal is allowed.

B The order dismissing the proceeding is quashed. C The proceeding is remitted to the High Court.

D The respondent is to pay two sets of costs for a standard appeal on a band A basis and usual disbursements for:

(a) the first, third and fourth appellants; and

(b) the fifth, sixth, seventh and eighth appellants.

The respondent is to pay usual disbursements for the second appellant.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Stevens and Wild JJ)

Table of Contents

	Para No
Introduction	[1]
The setting aside proceeding	[8]
The High Court judgment	[10]
The appellants' position	[23]
The CIR's position	[32]
High Court Rules – applicable principles	[44]
Appearance and protest to jurisdiction	[45]
Applications to strike out proceeding	[53]
Discussion	[58]
Result	[74]

Introduction

1 This is an appeal against a judgment of Venning J given on 26 February 2010 1 dismissing, for want of jurisdiction, a proceeding the appellants had commenced in the High Court (the setting aside proceeding). The proceeding sought an order setting aside an earlier judgment, also of Venning J, delivered on 20 December 2004 (the 2004 judgment) 2. The issue is whether the Judge erred in holding that the High Court lacked jurisdiction to hear and determine the setting aside proceeding.

2 The genesis of the 2004 judgment was a forestry investment scheme called the Trinity Scheme. The respondent, the Commissioner of Inland Revenue (CIR), treated the Trinity Scheme as a tax avoidance scheme that breached ss BB7 and BG1 of the Income Tax Act 1994 (the Act). The CIR then issued assessments disallowing deductions claimed by investors in the scheme. The 2004 judgment was given in the challenge proceeding brought by the Trinity investors, including the present appellants. The 2004 judgment upheld the CIR's treatment of the Trinity Scheme as tax avoidance and the CIR's resulting assessments. The 2004 judgment was upheld on appeal, first by this Court 3 and then by the Supreme Court. 4

3 The setting aside proceeding is one of several steps since taken by the Trinity investors challenging afresh the CIR's tax treatment of the Trinity Scheme. It was commenced in the High Court on 15 September 2009.

4 The CIR responded to the setting aside proceeding by filing an appearance under protest to jurisdiction and an application under r 5.49 of the High Court Rules (HRC) for an order dismissing the proceeding. In those two documents the CIR asserted that the High Court was functus officio and thus lacked jurisdiction to hear and determine the proceeding, and that any application to set aside the 2004 judgment must be made to the Supreme Court. The appearance under protest to

jurisdiction was also grounded on the fact that an application for recall of the 2004 judgment had been dismissed by the High Court 5 and the Court of Appeal. 6

5 Counsel for the CIR filed an accompanying memorandum stating that the CIR would not object to the jurisdiction of the Supreme Court to set aside its judgment if an appropriate application were made to the Supreme Court in the challenge proceeding. But he anticipated that the CIR would oppose any such application on the grounds that the Supreme Court had already:

• (a) declined to hear the argument now advanced, namely that the CIR should have applied subpart EH (now subpart E2) of the Act; and

• (b) determined that the nature of the tax avoidance scheme rendered the “deduction and spreading issues” moot.

6 The CIR also foreshadowed his view that any such application would be part of the Trinity Scheme taxpayers' “continuing and vexatious attempt … to delay or obstruct the enforcement of the tax debt owed by them … to the [CIR]”. He annexed an appendix listing the taxpayers' “multitude of unsuccessful proceedings”, which included their contemporaneous application to the High Court for judicial review, 7 which the CIR contended “raises substantially the same issues as are raised in this proceeding”.

7 In their notice of opposition, the appellants asserted that the High Court had jurisdiction to entertain their setting aside proceeding and that there was no restraint on their bringing that proceeding in the High Court.

The setting aside proceeding

8 The following sufficiently summarises for present purposes the way in which the setting aside proceeding was pleaded:

• (a) The CIR allowed the taxpayers' depreciation deductions calculated under subpart EG of the Act.

• (b) Having allowed those deductions, the CIR then voided the scheme under ss BB9 and BG1 of the Act for the 1997 and 1998 income years respectively.

• (c) The Act provides that calculation of expenditure under a financial arrangement can only be made under subpart EH, in particular s EH8(1), and prohibits calculation on any other basis, including under subpart EG (depreciation allowance).

• (d) Prior to issuing his assessments of the taxpayers, the CIR obtained independent expert advice from Mr Donald McKay to the effect that subpart EH of the Act was required to be applied to the transactions.

• (e) Mr McKay's advice was not followed by the Commissioner, nor was it discovered by him in the challenge proceeding. The taxpayers became aware of it only in February 2009.

• (f) The CIR:

  • (i) had and continues to have a statutory duty to refer to the application and effect of s EH8 in the Notices of Proposed Adjustments (NOPAs) on which he based his assessments, a duty which he breached and continues to breach; and

  • (ii) as a party to the challenge proceeding, had an obligation to refer the Court and the taxpayers' counsel to the application and effect of s EH8.

• (g) Had the CIR discharged his statutory obligations and his obligation to the High Court, the High Court would not have made the order it did confirming the assessments.

• (h) As a consequence of (a) to (f), the CIR presented a false case to the High Court which resulted in the High Court making an order which it could not legally make and would not otherwise have made. In particular:

  • (i) there was “a suppression of the truth so that the evidence and arguments advanced by the [CIR] carried a suggestion or insinuation of something false”; and

  • (ii) the CIR “presented a false case by deliberately refraining from putting before the [High Court] relevant and material facts and law for the purpose of securing an order which he knew was unlikely to be made if he had made the full disclosure he was required to”; and

  • (iii) when cross-examined before the High Court, Ms Tracey Lloyd, an officer of Inland Revenue, deposed that she could have applied subpart EH, without disclosing that she had a legal obligation to do so.

9 The statement of claim sought an order setting aside the 2004 judgment on the basis that, arising from s EH8(1), the assessments were unlawful and as a consequence of the CIR's failures the High Court acted without jurisdiction.

The High Court judgment

10 After setting out the background, Venning J (in the setting aside proceeding) noted counsel's confirmation that the taxpayers' claim was based on two grounds. These were:

• (a) fraud, in so far as that the CIR presented a false case to the High Court; and

• (b) that there was no lawful basis for the assessments confirmed by the High Court, so the Court acted without jurisdiction.

11 The Judge then noted that the CIR accepted that jurisdiction exists to bring a fresh proceeding to set aside an existing judgment on the basis of fraud, even if the original judgment had been appealed. The CIR's protest to jurisdiction and application to dismiss were made on the basis that the jurisdiction is limited to cases that allege and prove fraud, whereas the taxpayers' pleadings do not allege or raise fraud. The CIR said that, absent a proper pleading of fraud or a sustainable pleading that the judgment is a nullity, there is no jurisdiction for the High Court to revisit its earlier judgment that has been unsuccessfully appealed as far as the Supreme Court.

12 The Judge then defined the two issues for the Court as:

• (a) whether the taxpayers had pleaded that the 2004 judgment was obtained by fraud; and

• (b) whether the 2004 judgment was a nullity as a consequence of fraud and/or because there was no lawful basis for the assessments, with the result that the 2004 judgment confirming those assessments and finding the Trinity Scheme was tax avoidance was a nullity for lack of jurisdiction.

13 On the...