Judicial review - not an extremely rare case

Summary

The plaintiffs alleged the Commissioner's assessments were not genuine assessments and sought judicial review.

The High Court confirmed that the Supreme Court decision in Tannadyce Investments Limited v Commissioner of Inland Revenue [2011] NZSC 158 has made it clear that section 109 of the Tax Administration Act 1994 ("TAA") is a complete bar to judicial review proceedings seeking to overturn the Commissioner's assessments unless the claim can come within the category of rare cases where it is not practically possible for a taxpayer to attack an assessment under the disputes and challenge procedures. The Supreme Court had observed that this would be extremely rare.

Facts

The Commissioner made default assessments against each of the plaintiffs in June 2007 on the basis the plaintiffs were engaged in a joint-venture business buying and selling properties.

The plaintiffs issued a Notice of Proposed Adjustment (NOPA) in September 2007. The Commissioner rejected the NOPA, noting tax returns had not been filed. However, the Commissioner advised the plaintiffs that the assessments would be considered under section 113 of the TAA. The Commissioner ultimately amended some of the assessments for Ms Fa'agutu but confirmed that the remaining assessments would not be amended. The plaintiffs did not take any formal steps to dispute or challenge the assessments.

Over the following two years, the Commissioner and the plaintiffs had various meetings, discussions and correspondence regarding the debt. Ultimately, no amount was paid by the plaintiffs.

On 9 March 2010, the Commissioner filed Notices of Claim in the District Court seeking judgment for the debts. Judgment was obtained in October 2010.

Following a number of further discussions and correspondence, a settlement offer was made by the plaintiffs in February 2011. This offer was declined as the Commissioner had been made aware by the plaintiffs that they held substantial equity in their residential property. The Commissioner made a counter offer which was left open for 20 days. This was rejected by the plaintiffs. The Commissioner proceeded to seal the District Court judgments in August and September 2011. Bankruptcy notices were then filed in the High Court in respect of the plaintiffs in October 2011.

On 11 November 2011, the plaintiffs filed judicial review proceedings seeking the High Court remit the matter back to the Taxation Review Authority ("TRA") for assessment and review.

The pleadings

The statements of claim filed by the plaintiffs alleged that the Commissioner, in filing proceedings in the District Court, had denied the plaintiffs their right to fully exhaust all the options and procedures provided under Parts 8 and 8A of the TAA. Further, it was alleged that at the time the District Court proceedings were issued, the plaintiffs believed negotiations with the Commissioner regarding the debt were still proceeding.

However, in submissions, counsel for the plaintiffs advanced the plaintiffs' case on the basis the Commissioner's assessments were not genuine assessments.

At issue was whether the Commissioner's assessments were genuine assessments.

Decision

Toogood J referred to section 109 of the TAA and confirmed that the Supreme Court decision in Tannadyce Investments Limited v Commissioner of Inland Revenue [2011] NZSC 158 has made it clear that section 109 is a complete bar to judicial review proceedings seeking to overturn the Commissioner's assessments unless the claim could come within the category of rare cases where it is not practically possible for a taxpayer to attack an assessment under the disputes and challenge procedures. It was observed by the Supreme Court that this would be extremely rare.

The plaintiffs in this case submitted that these proceedings were not an attack on the merits of the assessments, but rather on the legitimacy of the process and the integrity of the Commissioner's decision-making. With regard to the arguments in relation to legitimacy, the plaintiffs raised a number of points:

• Given the weight and seriousness of an investigation, the plaintiffs were entitled to basic rights afforded by natural justice, including being adequately represented.
• The plaintiffs are humble laypersons and the transactions were not the sort of sophisticated commercial arrangements which gave rise to some of the relevant leading cases. It was also asserted that Mr Ali is in poor health.
• The plaintiffs were only interviewed once before the initial default assessments were made.
• The Commissioner should have disclosed the information he had already obtained during his investigation prior to the interviews and should not have asked the plaintiffs open-ended questions when he already knew the answer.

Toogood J confirmed that there is no statutory or other authority suggesting the Commissioner was obliged to disclose information in initial interviews. His Honour also referred to the initial audit letter (which set out the nature of the audit and invited voluntary disclosure), the advice given at the outset of the interview that this was voluntary, that the plaintiffs were entitled to have an adviser present, and that they could refuse to answer and further that any information could later be used in evidence.

As to representation, Toogood J confirmed that in fact the plaintiffs were accompanied by their tax agent at their interviews. His Honour also stated that the assessments were made on the basis of the information obtained during the interviews, information subsequently supplied by the plaintiffs and information from third parties.

His Honour also confirmed that the Commissioner was not obliged to make full disclosure of all information he holds until he provides a statement of position pursuant to section 89M of the TAA.

Toogood J concluded from the undisputed facts that the Commissioner had been more than patient with the plaintiffs and that they had been given every opportunity to avail themselves of the disputes and challenge procedures in the TAA.

As to the argument the assessments were no more than arbitrary conjecture or demonstrably unfair, the plaintiffs claimed that the Commissioner had predetermined the income based on information obtained prior to the interview with Mr Ali and thereafter had a closed mind. Toogood J rejected this argument, confirming the Commissioner went to considerable lengths to provide the plaintiffs with opportunities to satisfy him as to the nature and extent of the property dealings. Further, the Commissioner considered the plaintiffs' health and financial circumstances pursuant to the hardship provisions and was tolerant over approximately four years of investigation and discussion. In addition, the Commissioner had considered assertions made by the plaintiffs for the purposes of section 113 of the TAA, despite their failure to file returns, and was prepared to amend assessments for Ms Fa'agutu. The Court considered that this demonstrated the Commissioner's careful consideration of the evidence submitted.

Ultimately, his Honour concluded that, this was not a claim within the category of "extremely rare" cases envisaged by the Supreme Court in Tannadyce and accordingly section 109 was a complete bar to these proceedings.