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18 Jul 2007
Appeal Status

Appealing Strike Out of Judicial Review Application

2007 case note - taxpayer appealed decision to strike out application for judicial review - GST transactions, illegality, negligence, statutory duty, Bill of Rights.

Ch'elle Properties (NZ) Limited v The Commissioner of Inland Revenue

Judicature Amendment Act 1972


The taxpayer appealed the High Court decision to strike out its application for judicial review of the Commissioner's actions. The allegations against the Commissioner included illegality in withholding refunds; retrieving refunds accidentally paid; negligence; breach of statutory duty and not complying with the Bill of Rights Act.


This was an appeal from the decision of the High Court allowing the Commissioner's application to strike out Ch'elle Properties Ltd ("Ch'elle") Judicial Review proceedings.


Ch'elle filed GST returns for the taxable periods ending 31 May 1999 and 31 July 1999 claiming input tax credits totalling approximately $9 million. This was based on the purported purchase of 117 properties. The properties were sold by vendors set up and controlled by Nigel Ashby ("Mr Ashby"). Minimal deposits were paid and settlement was deferred for 20 years.

As Ch'elle was registered for GST on an invoice basis it claimed the GST on the purchases at the time an invoice was issued. The vendor companies were registered for GST on a payment basis, allowing it to defer accounting for output tax until settlement.

The Taxation Review Authority ("TRA"), High Court ("HC") and most recently, the Court of Appeal ("CA") found Ch'elle was not entitled to input credits in relation to 114 of the property transactions on the basis the scheme was one of tax avoidance.

In June 2004 Ch'elle also sought declaratory relief by way of judicial review and damages under the six causes of action set out below:

  • The Commissioner acted illegally when he recouped money paid accidentally to Ch'elle pursuant to section 43 of the GST Act;
  • The Commissioner was illegally withholding $9 million of input tax credits as he had not invoked section 46 of the GST Act;
  • The Commissioner acted illegally in making his assessment and during the disputes process and adjudication. Therefore the decisions of the TRA and High Court were invalid;
  • The Commissioner was negligent in that he breached a statutory duty of care and caused foreseeable loss;
  • The Commissioner breached a statutory duty;
  • The Commissioner had not complied with the NewZealand Bill of Rights Act ("NZBORA") in that he breached Ch'elle's right to natural justice.

The Commissioner sought to have the action struck out on the basis the claim amounted to an abuse of process, was untenable and/or futile.

Justice Keane in the HC struck the judicial review application out on the basis the causes of action on which Ch'elle relied were either untenable, an abuse of process or futile. There was no basis on which the taxpayer could resurrect its claim by amending its pleading. [see Ch'elle Properties (NZ) Limited v CIR (2005) 22 NZTC 19,622]


1st cause of action

In view of the TRA and HC decisions in the Challenge proceeding, the declaration that the Commissioner was unlawfully in possession of the refund was unavailable to Ch'elle. The refund was not and never should have been the property of Ch'elle. In addition, a declaration that the Commissioner acted illegally in removing the refund would be misleading since it had been established that Ch'elle was not entitled to the refund.

2nd cause of action

The CA agreed that while the Commissioner failed to follow the section 46 procedure (which the Commissioner accepted), the fact the scheme was found to be tax avoidance meant the declarations sought would be futile.

3rd cause of action

The CA agreed with the HC that no declaration of invalidity was available as the TRA hearing cured any procedural problems with the previous assessment. In addition, despite Ch'elle arguing otherwise, the Commissioner's SOP addendum was issued within the response period. Finally, in relation to the argument that the Commissioner could not advance arguments which differed from Adjudication, the issue was estopped from being argued as the HC had found in the Commissioner's favour and Ch'elle had not appealed this point.

4th cause of action

The CA found the negligence claim deficient as no particulars of the purported breach were provided. The CA agreed with the HC finding that it was undesirable to impose a duty of care on the Commissioner given the elaborate statutory construct within which the Commissioner and taxpayers relate.

5th cause of action

The CA found the allegation of breach of statutory duty to be totally misconceived in that if the refunds were properly payable Ch'elle would not need to rely on this tort for payment.

6th cause of action

The CA agreed with the HC that the final cause of action relying on section 27 New Zealand Bill of Rights Act could not succeed as the authority did not extend beyond procedural fairness. In addition, any possible breach on the part of the Commissioner before the assessments were issued was cured by the objection process. For this reason they preferred not to express an opinion as to the ambit of section 27(1) or circumstances in which compensation could be awarded.