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10 Nov 2011
Appeal Status

Claim simply untenable

2011 case note - Court had no jurisdiction to consider the family trust's claim, nor was it tenable - strike-out, abuse of court process, discretion.

The Harsono Family Trust v Commissioner of Inland Revenue


The Court had no jurisdiction to consider the Harsono Family Trust's ("HFT") claim, nor was it tenable. Furthermore, the claim brought by HFT against the Commissioner of Inland Revenue was found to be an abuse of process because HFT deliberately attempted to misconstrue the true nature of the payment.

Impact of decision

This decision confirms the well-settled principles relating to strike-out and abuse of process.


Company F acquired a property at 45 Anzac Ave, Auckland, on 17 January 2001. On 15 July 2002 HFT purported to enter into a sale and purchase agreement to purchase the property for $1,100,000 plus goods and services tax (GST) ($137,500) while the property was already the subject of an existing sale and purchase agreement to another potential purchaser. On 2 August 2002, HFT paid $137,500 to the Commissioner of Inland Revenue ("Commissioner") as output tax on the sale.

The Commissioner paid a GST input credit of $137,500 to HFT on 28 January 2004. On 27 October 2005 the High Court found, inter alia, that the purported sale of the property to HFT was invalid. The Court also found that HFT had wrongly induced and procured the vendor to breach its previous sale contract with the potential purchaser and HFT was involved in an unlawful means conspiracy causing loss to that earlier potential purchaser. On 19 July 2006 the Court of Appeal dismissed HFT's appeal against these findings.

Because the initial sale was invalid and was overturned, on 5 March 2007 the Commissioner issued a GST assessment which reversed the input tax credit issued in 2004. HFT then entered into the disputes and challenge proceedings as provided by Parts 4A and 8A of the Tax Administration Act 1994 ("TAA") to contest the reversal of the GST input tax credit.

On 14 May 2009, the Taxation Review Authority (TRA) confirmed the correctness of the assessment and found in favour of the Commissioner (case Z16). HFT then applied to have the TRA judgment recalled. On 5 August 2009 the TRA dismissed HFT's application for recall. The TRA held, inter alia, that HFT's recall application was "inconsistent with the objective of finality and certainty in litigation and is an abuse of process".

HFT then appealed the TRA's dismissal of the recall application in the High Court. On 15 September 2009, Venning J dismissed the appeal on the basis that there was no jurisdiction.

HFT persisted in its dissatisfaction with the Commissioner's assessment which reversed the $137,500 of input tax paid. On 16 March 2010, HFT issued civil proceedings against the Commissioner based on unjust enrichment, relief under section 94A of the Judicature Act 1908, money had and received, and restitution.

The Commissioner applied to strike out HFT's claim. The application was granted and HFT's claim was struck out on 21 March 2011 by virtue of the non-appearance of HFT or its legal representatives. HFT made an application to set aside that decision on the basis that the non-appearance was inadvertent. The Commissioner by consent agreed to set aside that decision. The strike-out application was then reheard by the District Court on 26 October 2011.


Whether HFT's claim should be struck out
Judge Wiltens first canvassed the requirements in the District Court Rules relating to strike-out, particularly Rule 2.50. A claim may be struck out if the pleading discloses no reasonable cause of action; or is likely to cause prejudice, embarrassment or delay; or is otherwise an abuse of process of the Court. Judge Wiltens also noted the well-settled criteria to be applied when deciding to strike out a cause of action, from A-G v Prince and Gardner [1998] 1 NZLR 262 (CA).

The Commissioner submitted that by virtue of section 109 of the TAA, the Court had no jurisdiction to deal with the assessments being challenged by HFT. The Commissioner also submitted that the claim was untenable and could not succeed as there were no valid grounds for HFT to dispute the assessment.

Whether the claim was tenable
Judge Wiltens noted that section 165 of the TAA provides that any person who pays tax for, or on behalf of, any other person is entitled to recover that amount from that other person as a debt. HFT paid the output tax on 2 August 2002 on behalf of the then-registered proprietor. Therefore, HFT could claim this amount against the then-registered proprietor, not against the Commissioner.

Judge Wiltens concluded that HFT's claim was simply untenable.

Whether the claim was an abuse of process
Judge Wiltens considered the law relating to abuse of process, particularly the decision of the Court of Appeal in Felton v Johnson [1998] 1 NZLR 262 (CA). The Court considered carefully the submissions by HFT. HFT had tried to re-characterise its payment of GST output tax as "money" rather than "tax". Judge Wiltens found that this was "simplistic" and deliberately attempted to misconstrue the true nature of the payment.

Goods and Services Act 1985, Tax Administration Act 1994, Judicature Act 1908