Tannadyce Investments Ltd v Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: Elias CJ,McGrath J,Tipping J
• Judgment Date: 20 December 2011
• Neutral Citation: [2011] NZSC 158
• Docket Number: SC 63/2010
• Court: Supreme Court
• Date: 20 December 2011

BETWEEN

Tannadyce Investments Limited

Appellant

and

Commissioner of Inland Revenue

Respondent

[2011] NZSC 158

court:

Elias CJ, Blanchard, Tipping, McGrath and Gault JJ

SC 63/2010

IN THE SUPREME COURT OF NEW ZEALAND

Appeal from a Court of Appeal decision which struck out, as an abuse of process, an application for judicial review of income tax assessments — appellant sought judicial review on the basis the respondent withheld information it needed to challenge its assessment in accordance with the procedure under the Tax Administration Act 1994 — appellant failed to challenge assessment under s109 (disputable decisions deemed correct except in proceedings) and s114 (validity of assessments) — consideration of constitutional role of judicial review — whether judicial review available to challenge a tax assessment.

Counsel:

A J Forbes QC and A J F Wilding for Appellant

K L Clark QC and P H Courtney for Respondent

• A The appeal is dismissed.

• B The appellant is to pay the respondent costs in the sum of $15,000 plus disbursements to be fixed if necessary by the Registrar.

JUDGMENT OF THE COURT

REASONS

	Para No
Elias CJ and McGrath J	[1]
Blanchard, Tipping and Gault JJ	[47]

Elias CJ AND McGrath J

(Given by McGrath J)

Introduction

1 Tannadyce Investments Ltd appeals against a judgment of the Court of Appeal 1 striking out, as an abuse of process, a proceeding seeking judicial review of assessments of its liability to income tax made by the Commissioner of Inland Revenue.

2 Under the Tax Administration Act 1994, taxpayers may challenge tax assessments in accordance with a prescribed disputes and challenge procedure. Its focus is on ascertaining the correct liability for tax and substituting an assessment for that sum where it differs from what the Commissioner determined. The 1994 Act also includes provisions that seek to shield assessments, and other decisions made under tax law, from challenge by means other than those provided by the statute. Legislation that is enacted to restrict access by a citizen to judicial review of governmental decision-making often gives rise to questions of a constitutional kind concerning the true scope and meaning of the exclusionary provisions. The present appeal is an instance. The appellant has brought its challenge in a judicial review proceeding and has not invoked the statutory regime for challenging tax assessments.

The constitutional dimension

3 Our constitutional arrangements recognise that the Parliament of New Zealand is the supreme law maker and has “full power to make laws”. 2 The courts of higher jurisdiction, however, have constitutional responsibility for upholding the values which constitute the rule of law. A central aspect of that role is to ensure that when public officials exercise the powers conferred on them by

Parliament, they act within them. Judicial review is the common law means by which the courts hold such officials to account. 3 It provides the public with assurance that public officials are acting within the law in exercising their powers, and are accountable if they depart from doing so. Statutes limiting recourse to judicial review to challenge statutory decisions accordingly raise issues of constitutional concern. This concern is reflected in the presumption of the courts, when interpreting such legislation, that it was not Parliament's purpose to allow decision-makers power conclusively to determine any question of law. 4 Furthermore, in the present context, tax legislation will not readily be read as enabling imposition of a liability for tax without also allowing the opportunity of access to a judicial process to show that, in law, the tax should not have been imposed or imposed in the amount assessed

4 Legislation which does not on its terms prohibit judicial review, but restricts its availability, can nevertheless interfere with full supervision by the courts of the conformity of activities of government with the rule of law. The courts are reluctant to read legislation in a manner that impairs their ability to hold public officials to account in this way.

5 These constitutional concerns over access to justice and accountability are also served by the general statutory principle in relation to judicial review that the existence of a right of appeal does not exclude the courts' jurisdiction in judicial review proceedings in relation to the same subject matter. 5

6 The courts nevertheless recognise that statutory challenge and appellate processes can provide a better means of judicial supervision of government decision-making than judicial review. In the context of rights of appeal and their effect on claims of breach of rights to natural justice, as an Australian leading text on judicial review argues: 6

If there is an appeal on the merits by way of de novo hearing, to a person who is unlikely to be influenced by what occurred at first instance, the appeal may be able to provide all that procedural fairness requires. If so, it is a far superior remedy for breach of natural justice than judicial review, since it will not only redress the initial unfairness more effectively and quickly than judicial review can, but also, replace the initial decision with a fresh decision on the merits. This provides a strong justification for courts allowing such appeals to cure defects and requiring those complaining of breach of natural justice to exercise their rights of appeal instead of seeking judicial review. (citations omitted)

7 At times, however, litigants, including taxpayers, contend that the statutory process is not adequate or effective in the circumstances which give rise to their challenge, and seek to pursue judicial review instead or ahead of a statutory challenge to an assessment. This is such a case.

The 1976 Act

8 The Inland Revenue Department Act 1974 provided that the Commissioner of Inland Revenue was charged with administration of the Inland Revenue Acts, which included the Income Tax Act 1976. 7 That Act imposed liability for income tax. The Commissioner quantified that liability by annual assessments of the amount on which tax was payable by each taxpayer, and the amount of that tax. 8

9 The 1976 Act contained two particular provisions in Part 2, which were protective of tax assessments. Section 26 protected their validity:

26 Validity of assessments not affected by failure to comply with Act—

The validity of an assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

Section 27 deemed an assessment to be correct except where challenged in statutory objection proceedings:

27 Assessments deemed correct except in proceedings on objection—

Except in proceedings on objection to an assessment under Part III of this Act, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings (including proceedings before a Taxation Review Authority) either on the ground that the person so assessed is not a taxpayer or on any other ground; and, except as aforesaid, every such assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly.

10 Part 3 of the 1976 Act provided a regime for taxpayers to object to assessments of tax. Any person who had been assessed for income tax could object to an assessment. 9 The objections were considered by the Commissioner and, if not allowed, they were heard and determined by the Taxation Review Authority or High Court. Where the objection was heard by the Court, its procedure was the same as if it were hearing a civil action in which the taxpayer was plaintiff and the Commissioner defendant. The legislation gave the Court power to cancel or vary any assessment, and to make any assessment which the Commissioner could have made or to direct the Commissioner to make such an assessment. 10 In other words, the Court stood in the shoes of the Commissioner and determined the objection on the merits. It was able to substitute what it considered to be the correct decision. The provisions where the Authority determined the objection were similar. 11 There were rights of appeal from their decisions in each case.

11 In a series of judgments, the meaning of the provisions limiting the availability of judicial review under the 1976 Act, in favour of the statutory objection and appeal process, came under close examination from the Court of Appeal. In Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd, 12 the Court of Appeal, in applying ss 26 and 27, drew a distinction between challenging the correctness of an assessment of tax and challenging the process of the Commissioner in making it, along with the character of the resulting assessment decision. The exclusionary provisions applied to the former and precluded judicial review, but on

their true meaning they did not apply to the latter. The Court held that the legitimacy of the process, and whether or not the character of the decision was in the nature of an assessment as envisaged by the legislation, could be attacked in judicial review proceedings on administrative law grounds provided that there was a sufficient evidential foundation. 13 The Court also held that whether the particular “assessment” decision under challenge was so tentative and provisional that it was not an assessment for the purposes of the Act could be addressed in judicial review. The Court accordingly refused to strike out the judicial review proceedings brought against the Commissioner by the taxpayer

12 Subsequently, in Golden Bay Cement Co Ltd v Commissioner of Inland Revenue, 14 the Court of Appeal held that the Court's powers, on hearing an objection, to “confirm or cancel or vary” 15 the assessment covered every situation in which an assessment was challenged. It followed that...