Appropriate course for dealing with an allegation that the High Court was functus officio

Summary

This decision concerned the appropriate course to take when the High Court is confronted with an allegation that the High Court was functus officio and thus lacked the jurisdiction to hear and determine the proceedings.

Impact of decision

Although this is a procedural decision it concerns the Trinity scheme. The Commissioner is yet to decide whether to appeal to the Supreme Court or continue with the setting aside application in the High Court, following repleading by the taxpayers.

Facts

In September 2009 the taxpayers filed a proceeding in the High Court seeking an order to set aside a December 2004 High Court judgment Accent Management Ltd v Commissioner of Inland Revenue (2004) 22 NZTC 19,027 (HC). This was the original High Court judgment (upheld by the Court of Appeal and the Supreme Court) finding that the Trinity scheme was a tax avoidance arrangement. The Commissioner responded to this setting-aside proceeding by filing a protest to jurisdiction and an application under rule 5.49 of the High Court Rules ("HCRs") for an order dismissing the proceeding.

The Commissioner asserted that the High Court was functus officio and thus lacked jurisdiction to hear and determine the proceedings and that any application to set aside the 2004 judgment must be made to the Supreme Court.

The taxpayers conversely asserted that the High Court had jurisdiction to entertain their setting-aside proceeding and that there was no restraint on their bringing that proceeding to the High Court.

The setting-aside proceeding pleaded that the Commissioner presented a false case to the High Court in 2004 which resulted in the High Court making an order which it could not legally make and would not otherwise have made.

The High Court (Venning J) concluded that fraud had not been alleged which is a requirement for the High Court to exercise its jurisdiction to set aside the 2004 judgment. The Commissioner's assessments and the High Court's findings of tax avoidance, as confirmed by the Court of Appeal and the Supreme Court, remained valid. The High Court was functus officio and the setting-aside proceeding was dismissed (Redcliffe Forestry Venture Limited v Commissioner of Inland Revenue [2011] 1 NZLR 336 (HC)).

The taxpayers submitted in the Court of Appeal that arguments as to the meaning and scope of the pleadings are to be decided in a strike-out application should the Commissioner make such an application under rule 15.1 of the HCRs. In the High Court, the taxpayers were deprived of any opportunity to re-plead and or present evidence of their claim of fraud.

The Commissioner responded by submitting that (inter alia) the Commissioner was correct to use a protest to jurisdiction as the means of bringing the setting-aside proceeding to an end. The taxpayers had abandoned three Trinity scheme appeals which rendered this setting-aside proceeding moot and an abuse of process which should be struck out. The taxpayers were wrong to submit that the High Court had general jurisdiction to set aside one of its own judgments that had been confirmed on appeal. The High Court did have jurisdiction to entertain an application to set aside the 2004 judgment that it had been obtained by fraud but the taxpayers were alleging error of law on the part of the Supreme Court and not fraud by the Commissioner.

Decision

The Court stated that had the Commissioner applied to strike out the proceeding it would have been made under rule 15.1 of the HCRs. Such an application proceeds on the assumption that the facts pleaded in the claim are true except where a proceeding alleges fraud. In that case there is an obligation on the plaintiff to produce probative evidence to support the claim of fraud.

The protest to jurisdiction application was made under rule 5.49 of the HCRs. The Court stated that this procedure only concerns the Court's jurisdiction to hear and determine the application or proceeding, not the Court's jurisdiction to grant relief in a proceeding within its jurisdiction.

The Court held that rule 5.49 of the HCRs was not the appropriate vehicle for the Commissioner's challenge to the setting-aside proceeding [58].

The Court went on to state that:

• The question whether the High Court's jurisdiction to set aside its own judgments that have been appealed is limited to cases where fraud is alleged and proved, or is wider in scope, goes to the High Court's jurisdiction to grant the remedy sought by the appellants. But, as we have said, that is not what the rule 5.49 procedure is designed to address [65].

Having found for the taxpayers, the Court affirmed that the taxpayers should now be able to amend their pleadings, put forward what they allege as probative evidence of fraud and argue their repleaded case contending that the evidence brings the case within the fraud exception or that the fraud exception should be broadened to encompass their case.