High Court discusses Commissioner's ability to settle tax litigation
2006 case note - CIR's ability to settle tax litigation - recall, care and management, settlement, Trinity scheme.
Tax Administration Act 1994
The plaintiffs made two applications. The first was that Venning J disqualify himself from hearing the non-party costs award against Dr Muir, and also that he should not have heard the substantive case. The second was an application that the substantive Trinity scheme judgment be recalled. Both applications were refused. This summary only considers the recall application.
The Trinity scheme involved a large number of taxpayers. Immediately prior to the hearing, several of the plaintiffs in the designated test cases approached the Commissioner to discuss settlement. After negotiations, the Commissioner reached settlement with these plaintiffs and issued assessments to reflect the terms of the settlement.
The plaintiffs sought to have the substantive judgment recalled. It was submitted the case was defended by the Commissioner on a false basis as the assessments issued to the taxpayers who settled were inconsistent with those he was defending in the litigation. It was argued that had the plaintiffs known the terms of settlement, they would have seriously considered settling. However, Venning J found that the plaintiffs had been aware since 2001 that the Commissioner would have considered any approaches to settle the litigation. The plaintiffs were also aware that other taxpayers had settled.
The plaintiffs sought to have the judgment recalled under rule 542(3) of the High Court Rules. It was submitted that section 6A(3) of the Tax Administration Act did not authorise the Commissioner to settle on terms with some of the litigants different to the assessments the Commissioner sought to defend at the hearing.
Venning J accepted that prior to the enactment of section 6A the Commissioner was not able to opt out of his statutory obligations to assess what he believed to be the correct amount of tax: Brierley Investments v Bouzaid  3 NZLR 655. However, section 6A was enacted to rectify that position and allow the Commissioner to make decisions by way of care and management.
His Honour also considered that the decision in Auckland Gas Co Ltd v Commissioner of Inland Revenue  2 NZLR 409 was not confined to the question of costs awards. The Court of Appeal had stated that the Commissioner was entitled by sections 6 and 6A to make sensible litigation decisions, including settlement. This includes taking into account factors such as litigation risk and cost.
The decision also states that section 89C(d) of the TAA provides the machinery for the Commissioner to document and record the settlement in the form of an assessment.
With regards to multi-party litigation, it must also be recognised that the circumstances of individual taxpayers will vary. Venning J held that, as a matter of principle,the Commissioner must be able to settle complicated multi-party litigation with only some plaintiffs. If not, the considerations in section 6A(3) would be defeated as the desire of one unreasonable taxpayer to litigate could prevent all other taxpayers from reaching a settlement with the Commissioner.