Issued
2014
Decision
05 Aug 2014
Appeal Status
Appealed

Appeal by Trinity investors to set aside a High Court decision and indemnity costs award

2014 case note – Appeal by investors in Trinity Scheme to set aside a High Court decision and indemnity costs award.

Case
Ben Nevis Forestry Ventures Limited, Bristol Forestry Ventures Limited, Clive Richard Bradbury, Gregory Alan Peebles v Commissioner of Inland Revenue
Legal terms
Trinity, indemnity costs, setting aside, bias

Summary

The Court of Appeal dismissed the appellants' application to set aside a High Court judgment of Katz J (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2013] NZHC 2361, (2013) 26 NZTC 21-032) and upheld the High Court's award of indemnity costs to the Commissioner of Inland Revenue ("the Commissioner"). The original judgment addressed an application by the appellants to set aside Accent Management Ltd v Commissioner of Inland Revenue (2004) 22 NZTC 19,027 (HC) on the basis that Venning J, the first instance judge, was biased. That application was dismissed for want of jurisdiction as the matter had subsequently been considered on appeal.

Impact of decision

The Court of Appeal confirmed that once a decision has been considered on appeal, the lower court has no jurisdiction - even in a case where a judgment is void ex debito justitiae (ie, where a judgment is fundamentally flawed (for instance a breach of natural justice) it must still go to the last Court seized of the matter even though the judgment could be voided as of right).

Facts

This appeal relates to the Trinity scheme which was confirmed as tax avoidance by the Supreme Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 ("Ben Nevis"). This appeal was one of a number of related matters heard by the Court of Appeal on 18 to 20 March 2014. This proceeding involved an appeal against a High Court judgment of Katz J (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2013] NZHC 2361, (2013) 26 NZTC 21-032). ("Katz J judgment") where her Honour upheld a protest to jurisdiction by the Commissioner and dismissed the application made by the appellants to set aside an earlier decision  Accent Management Ltd v Commissioner of Inland Revenue (2004) 22 NZTC 19,027 (HC) ("Accent 2004"). The appellants in the Katz J judgment were seeking to set aside Accent 2004 on the basis that Venning J, the first instance judge, was biased as he was said to be beholden to the Commissioner.

Katz J also awarded the Commissioner indemnity costs.

Decision

The Court of Appeal found for the Commissioner.

The Court began by setting out the context of the appellants' appeal at [16]:

  • The taxpayers [including the appellants] who contested the Commissioner's assessments in the High Court, and who were unsuccessful in Accent 2004 (and in the appellate decisions upholding Accent 2004) have embarked on a series of challenges to the ruling, all of which have been unsuccessful and most of which have led to awards of indemnity costs against them.

First issue: Jurisdiction to set aside

The Court referring to R v Smith [2003] 3 NZLR 617 (CA)agreed with Katz J's judgment, finding that there is jurisdiction to set aside a proceeding ex debito justitiae where no appeal has been determined but that this jurisdiction is exercised rarely and only in clear-cut cases.

Second issue: Impact of appeals

The Court found the question of the appropriate venue for dealing with a potentially tainted judgment that has been the subject of successive appeals is not clear from the authorities. The Court considered there was a conflict between:

  1. authorities establishing that a decision obtained in breach of the rules of natural justice can be set aside ex debito justitiae; and
  2. the reality that in a hierarchical court system it would be an oddity if a trial court could set aside its own decision and thereby effectively nullify decisions of appellate courts.

It accepted a court setting aside an earlier decision of its own is a real possibility in the case of a judgment obtained by fraud and this possibility was confirmed in the related decision of the Supreme Court in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 ("Redcliffe"). However, the Court concluded that Redcliffe indicates that a challenge to a concluded judgment that has been the subject of an appellate judgment should not be mounted in the trial court except in the case of a judgment obtained by fraud, which is recognised as a special exception.

In the circumstances of this case, the appropriate Court is the appellate Court and the Commissioner's protest was upheld.

Third issue: Whether indemnity costs should have been awarded to the Commissioner

The Katz J judgment awarded indemnity costs to the Commissioner on the basis it was a hopeless case relying on the indemnity costs principles in Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29](b)-(e). Katz J found it was not even remotely arguable that the Court had jurisdiction to hear and determine the proceeding and the relief it sought was indisputably beyond the jurisdiction of the High Court.

For this reason, the Court did not consider the Commissioner's other arguments for indemnity costs of:

  1. misconduct causing loss of time to the Court and other parties;
  2. commencing or continuing proceedings for an ulterior motive; and
  3. doing so in wilful disregard of known facts or clearly established law.

The Court accepted the appellants' submission that the jurisdictional issues in the case are ones on which there is no clear precedent and the fact that the appellants ultimately lost in the High Court, and have now lost in the Court of Appeal, does not mean that the jurisdictional argument was hopeless.

However, the Court noted it did think the underlying claim meets a number of the other arguments put forward by the Commissioner and dismissed the appeal against the indemnity costs stating at [58]:

  • First, it is a continuation of repeated proceedings alleging bias on the part of Venning J, in circumstances where all scrutiny of the position of Venning J has found the allegations to be unsubstantiated. Second, it is for an ulterior motive of preventing the Commissioner from obtaining the fruits of the judgment of the Supreme Court in Ben Nevis. It is, as we mentioned earlier, part of a series of challenges. These have been repetitious in nature and have reached the point where they are improperly brought. In the circumstances, therefore, we consider that Katz J was right to award indemnity costs and we dismiss the appeal against the costs judgment.

The Court went on to consider costs in this proceeding stating the reasons justifying the award of indemnity costs in the Katz J judgment could equally justify indemnity costs on this appeal. However, because the jurisdiction arguments raised were at least arguable, it awarded the Commissioner costs on a complex appeal on a band B basis plus usual disbursements.

Tax Administration Act 1994, Income Tax Act 1994