Issued
2012
Decision
09 Nov 2012
Appeal Status
No right of appeal

Setting aside a judgment

2012 case note – High Court has no power to set aside its judgment on questions of law that have been the subject of appellate decision.

Case
Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd
Legal terms
Fraud finality in litigation, jurisdiction nullity

Summary

The High Court has no power to recall or set aside its judgment on questions of law that have been the subject of appellate decision.

Impact of decision

The assessments confirmed by the Supreme Court in Ben Nevis were not improperly obtained. Arguments based on fraud in this case are collateral attacks, which cannot be sustained.

The Court of Appeal order remitting the proceeding back to the High Court and the possible consequential strike-out application by the Commissioner of Inland Revenue ("the Commissioner") was overturned. The judgment of the High Court was reinstated.

Facts

On 19 December 2008, the Supreme Court delivered judgment in an appeal by investors and loss-attributing qualifying companies over their participation in a forestry development project known as the Trinity scheme (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115). The Supreme Court's judgment upheld the assessments made by the Commissioner that the Trinity scheme was a tax avoidance arrangement.

On 15 September 2009, Redcliffe Forestry Venture Ltd and six other Trinity investors, along with Garry Muir, a director of Redcliffe and the architect of the Trinity scheme (together "Redcliffe"), brought proceedings against the Commissioner.

Redcliffe sought orders setting aside the judgment of the High Court, delivered by Venning J in 2004, on the ground that the Commissioner had obtained that judgment by knowingly presenting a "false case" in the High Court.

Redcliffe alleged that the Commissioner had deliberately refrained from putting material facts and law before the High Court so as to secure a judgment the Commissioner knew would not have been available if there had been full and frank disclosure of the legal position.

The specific allegation was that the Commissioner knowingly and wrongly applied a depreciation allowance to expenditure incurred by the Trinity investors under subpart EG of the Income Tax Act 2004 when subpart EH8(1) required that the expenditure be calculated under its provisions.

Under rule 5.49 of the High Court Rules, the Commissioner objected to the jurisdiction of the High Court to consider Redcliffe's application as the 2004 High Court judgment had been upheld by the Supreme Court. The Commissioner applied for orders dismissing Redcliffe's proceeding on the ground that the High Court judgment they sought to set aside is final and cannot be reopened.

The Commissioner's application was successful and Venning J dismissed Redcliffe's proceeding. Redcliffe appealed to the Court of Appeal arguing that the Commissioner should have brought the objection based on the finality of the earlier judgment by applying to strike out Redcliffe's proceeding under rule 15, not rule 5.49. Redcliffe alleged that they had been denied an opportunity to amend their pleadings, and to meet any strike-out application with affidavit evidence of the alleged fraud.

The Court of Appeal accepted these arguments, allowed the appeal, and remitted Redcliffe's case to the High Court where the Commissioner could apply under rule 15 to strike out the proceeding. The Commissioner appealed to the Supreme Court.

Decision

Whether the Commissioner's challenge to the claim was appropriately brought under rule 5.49

Rule 5.49 allows a defendant to protest the jurisdiction of the Court to hear and determine a proceeding on the basis that the Court has no power to entertain the claim.

The Court of Appeal considered that the Commissioner confused the jurisdiction of the Court to grant relief with its jurisdiction to entertain and decide a claim for relief. Similarly Venning J had erred by confusing the High Court's power to grant relief by setting aside the 2004 judgment with its jurisdiction to hear and determine the setting-aside proceeding.

The Supreme Court found that these were not the arguments advanced by the Commissioner. The Commissioner had accepted that the High Court has the threshold power to determine the limits of its jurisdiction in relation to the plaintiffs' proceeding.

The Commissioner's argument was that the High Court had no "jurisdiction" because jurisdiction now lay with the Supreme Court on an application by Redcliffe to recall the judgment of the Supreme Court. This contention relates to the High Court's power to hear and decide Redcliffe's proceeding rather than whether the Court can grant the relief it seeks.

The Supreme Court found that the Court of Appeal had not addressed this argument. The Commissioner's objection to the High Court's jurisdiction fell within one of the categories of cases to which rule 5.49 applied. The Supreme Court found that a proper function of rule 5.49 was to determine whether the High Court was competent to decide the dispute.

The Supreme Court found that the Court of Appeal's approach to interpreting the meaning of "jurisdiction" under rule 5.49 was too restricted. Rule 5.49 expresses an unqualified right to challenge a court's jurisdiction to hear and determine a proceeding.

Redcliffe's allegations did not constitute a case capable of leading the High Court to set aside the 2004 judgment. The Supreme Court held that the High Court lacks jurisdiction to determine whether the Supreme Court's legal conclusions in Ben Nevis were wrong.

The Commissioner's objection to the High Court's jurisdiction under rule 5.49 was soundly based and should have been upheld.

Whether the judgment of the High Court should in any event have been upheld

The Supreme Court began with a discussion of the principle of finality in litigation and the fraud exception. The principle of finality in litigation makes conclusive final determinations reached in the judicial process. Unless a judgment of a Court is set aside on further appeal or otherwise set aside or amended according to law, it is conclusive as to the legal consequences it decides: R v Smith ([2003] 3 NZLR 617 (CA)).

The principle of finality in litigation reflects both the public interest in there being an end to litigation and the private interest of parties to court processes not being subjected by their opponents to vexatious re-litigation.

The principle of finality in litigation is attended with limited exceptions when justice requires. Exceptionally the law allows judgments to be attacked inter alia on grounds of fraud: there must be conscious and deliberate dishonesty and the Court's judgment must be obtained by it.

The rationale for allowing a fraud exception to finality is that it is right that a party who can show that his or her ability to mount an effective case was compromised by the fraudulent conduct of the other party, should not be bound by a judgment which was thereby obtained.

Where such allegations are made, the plaintiff is required to discharge the onus of showing it has a case with an evidential foundation amounting to a prima facie case of fraud. The plaintiff also has the onus of establishing that the new evidence is sufficient to justify a new trial.

The Supreme Court then considered whether Redcliffe raised a tenable case involving the fraud exception. Redcliffe alleged that the Commissioner had a statutory duty under section 89F of the Tax Administration Act 1994, to refer, in notices of proposed adjustment, the "existence, application and effect" of subpart EH8, but deliberately and as part of a litigation strategy, did not do so.

Redcliffe's overall claim was that the Commissioner had suppressed the true legal position, presented a false case to the High Court, and thereby procured a judgment, based partly on the wrong provisions of the Income Tax Act 2004.

The Supreme Court found that the fraud exception to the finality of judgments does not apply to legal errors allegedly made in the reasons for judgment, even if a party's conduct is said to contribute to the making of the alleged error.

Where the fraud exception to finality is properly invoked, the party challenging the judgment will be able to show that his or her ability to mount an effective case was compromised by the fraudulent conduct of the other party.

The Supreme Court found that the fraud exception is not applicable in the instant case. The legislative subpart allegedly concealed was at all times present in the legislation and was thus inherently incapable of concealment. It was also raised in evidence by the Commissioner.

The judgment of the High Court was correct and was reinstated. Redcliffe's proceeding was dismissed.

High Court Rules, Tax Administration Act 1994, Income Tax Act 2004