Commissioner awarded indemnity costs
2014 case note – CIR's indemnity costs awarded for an unsuccessful application by Trinity investors to set aside a statutory demand confirmed by the Supreme Court.
The High Court awarded indemnity costs in respect of an unsuccessful application by Trinity investors to set aside a statutory demand issued in respect of tax assessments confirmed by the Supreme Court.
Impact of decision
The Court found the plaintiffs' arguments to be groundless and unsupported, and that the history of the case justifies awarding indemnity costs. In doing so, reliance was made on the decision of the Court of Appeal in Bradbury v Westpac Banking Corporation  3 NZLR 400 (CA) ("Bradbury v Westpac Banking Corporation").
This decision relates to Justice Faire's judgment in Accent Management v Commissioner of Inland Revenue  24 NZTC 24,126, dismissing the plaintiffs' applications to set aside the statutory demands issued by the Commissioner of Inland Revenue ("the Commissioner"). The plaintiffs were participants in the Trinity tax avoidance scheme and the statutory demands they sought to set aside were issued in connection with assessments confirmed by the Supreme Court in Ben Nevis Forestry Ventures & Ors v Commissioner of Inland Revenue  NZSC115;  2 NZLR 289.
Following the substantive hearing, his Honour left the costs issues for the parties to discuss. However, they were unable to agree on the cost issues and therefore the parties filed memoranda in support, opposition and reply setting out issues for determination.
Justice Faire first dealt with the plaintiffs' submission that costs should be reduced under rule 14.7 of the High Court Rules ("HCR"). This issue was linked to an application to admit further evidence to the effect that the defendant recklessly failed to disclose its knowledge of the existence, application and effect of section EH 8(1) of the Income Tax Act 1994 to procure orders of the hearing authority that did not represent the tax charge already imposed by Parliament. His Honour agreed with the Commissioner's submission that evidence regarding the application of section EH 8(1) was not relevant, and even if it were, the result would not have been different. His Honour further noted the Commissioner's submission that the same allegations had already been made and dismissed by the High Court twice and also by the Supreme Court.
The second issue was whether it was premature to award costs because the plaintiffs had filed an appeal to the Court of Appeal challenging this Court's jurisdiction. Justice Faire did not consider that it added anything to the first issue he had analysed and dismissed it for the same reasons.
His Honour then moved on to consider the defendant's submissions that costs on the applications should be made on a Category 2 Band B basis up until the date of the judgment in the related matter of Bristol Forestry Venture Ltd v Commissioner of Inland Revenue  NZHC 2384 ("Bristol") and thereafter indemnity costs or increased costs were appropriate.
HCR 14.6 sets out the circumstances where increased or indemnity costs can be awarded. Justice Faire made reference to the case of Hedley & Ors v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC), where the Court noted that indemnity costs were awarded where truly exceptional circumstances exist. He noted that the Court of Appeal in Bradbury v Westpac Banking Corporation  3 NZLR 400, (2009) 19 PRNZ 385, approved this approach, and set out circumstances that are not listed in HCR 14.6, but in which the Court can exercise its discretion. These circumstances include fraud allegations made known to be false, misconduct that causes loss of time, commencing proceeding for some ulterior motive and prolonging a "hopeless case".
Justice Faire referred to the Commissioner's submissions pointing out the similarities (both legally and factually) between these proceedings and the Bristol and Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue  NZHC 2818, (2013) 26 NZTC 21-041 ("Redcliffe") cases. His Honour agreed and considered there was no real distinction to justify a different conclusion to that reached in Redcliffe that the litigation history and groundless and unsupported arguments meant indemnity costs were appropriate on a number of the grounds in Bradbury v Westpac Banking Corporation.
Justice Faire concluded that there was a proper basis for awarding 2B costs up until 12 September 2013 and that thereafter costs on an indemnity basis should be awarded. Accordingly, his Honour ordered that the plaintiffs pay the defendant's costs in relation to both applications; in total a sum of $26,013.65 and disbursements of $2,529.26.
Companies Act 1993, Rule 14 High Court Rules, Income Tax Act 1994