Issued
2014
Decision
26 Aug 2014
Appeal Status
Appealed

High Court grants interim relief under section 8 of the Judicature Amendment Act 1972

2014 case note - Court granted interim relief to taxpayer prohibiting CIR from commencing bankruptcy proceedings until judicial review application determined.

Case
Russell v Commissioner of Inland Revenue
Legal terms
Interim relief, bankruptcy, judicial review, position necessary to preserve

Summary

The applicant, Mr John George Russell ("Mr Russell") filed a judicial review application against the Commissioner of Inland Revenue ("the Commissioner") in relation to her decision not to accept his proposed offers of settlement. The Commissioner obtained summary judgment against Mr Russell for approximately $367 million. Mr Russell sought interim relief under section 8 of the Judicature Amendment Act 1972 ("JAA"). The Court granted interim relief to Mr Russell making an order prohibiting the Commissioner from commencing bankruptcy proceedings until the Commissioner's application to strike out the judicial review proceeding is determined.

Introduction

This decision concerns an application made by Mr Russell for interim relief under section 8 of the JAA. Specifically, Mr Russell sought an interim order to prevent the Commissioner from taking steps to have him adjudicated bankrupt on the grounds that the order is necessary to preserve his position and is in the interest of justice.

Facts

In January 2003, the Commissioner assessed Mr Russell, for taxation in the years 1985 Income Tax Act 2004, Tax Administration Act 1994 to 2000, having determined that he was a party to, and affected by, arrangements said to constitute tax avoidance. These assessments were confirmed in the Taxation Review Authority and on appeal.

Mr Russell's appeals to the High Court and Court of Appeal were dismissed. On 13 August 2012, the Supreme Court dismissed Mr Russell's application for leave to appeal to that Court.

As Mr Russell has exhausted all avenues of challenge to the assessments, the Commissioner began enforcement action against him. On 10 June 2014, Associate Judge Doogue granted summary judgment against Mr Russell in favour of the Commissioner for unpaid tax, interest, and penalties totalling $367,204,207.41.

Before the application for summary judgment was heard, Mr Russell filed proceedings seeking judicial review that relates to the Commissioner's refusal to accept Mr Russell's offers to settle his tax liability and under which he alleges that the Commissioner's decision to reject his instalment proposals were not made fairly, reasonably, or in accordance with the relevant provisions of the Tax Administration Act 1994.

The Commissioner has applied to strike out the judicial review proceedings. The application has not yet been set down for hearing.

Mr Russell then applied for interim relief under the JAA.

Decision

The Court made an interim order prohibiting the Commissioner from commencing bankruptcy proceedings against Mr Russell, pending further order from the Court. Her Honour held that the order is to last only until the Commissioner's application to strike out the judicial review proceeding is determined. The Court reserved her decision on costs, pending further order of the Court.

Jurisdiction to make interim orders

Andrews J began her analysis by considering the legislation and case law relevant to the application of section 8 of the JAA. Her Honour referred to the approach taken in Carlton & United Breweries Limited v Minister of Customs [1986] 1 NZLR 423 (CA) ("Carlton") and noted the differences of approach as to the place for consideration of the merits of the applicant's case for judicial review.

Her Honour mentioned the case of Safe Water Alternative New Zealand Incorporated v Hamilton City Council [2014] NZHC 1463 ("Safe Water") in which Kos J described the Carlton approach as a two-stage enquiry of first determining whether it is necessary to grant interim relief to preserve the applicant's position, then considering whether it is appropriate to grant the relief sought. The Court in Safe Water described a three-stage approach, with a new first stage of considering whether there is a "real contest" between the parties.

Then her Honour referred to International Heliparts NZ Ltd v Director of Civil Aviation [1997] 1 NZLR 230 (HC) where it was considered that the test is simply whether interim orders are necessary to preserve the applicant's position.

Andrews J preferred not to adopt the three-stage test described in Safe Water as her Honour considered that it is not consistent with Carlton and appears to require consideration of the merits of the applicant's case twice; first to decide if there is a "real contest", and second to decide whether to exercise the discretion to grant interim relief.

Her Honour also noted the approach taken by Whata J in Hampton v Canterbury Earthquake Recovery Authority [2012] NZRMA 139, where the Court first determined whether an order was necessary to preserve the applicant's position and then considered the apparent strengths and weaknesses of the applicant's case.

Is an interim order necessary to preserve the applicant's position?

Andrews J accepted the submission made by Mr Russell's counsel, that the position that the applicant sought to preserve was "the legal status of not being bankrupt". This was in opposition to the submission made on behalf of the Commissioner that the "position" was the ability for Mr Russell to pursue the judicial review application.

Her Honour went on to find that an interim order was reasonably necessary to preserve Mr Russell's position of not being bankrupt, as the Commissioner has a judgment against him and in the absence of an interim order preventing her from doing so, can and will pursue bankruptcy proceedings.

Should an interim order be made?

Andrews J considered that the issue of whether to grant the interim order was far more difficult, and requires consideration, among other things, of the application for judicial review.

In regard to Mr Russell's case for judicial review, her Honour concluded that as the Commissioner's application to strike out Mr Russell's judicial review application had not yet been heard, it was not appropriate to comment in any detail on the strength or weakness of Mr Russell's case. However, her Honour could not conclude that Mr Russell's case is so hopeless that his application for an interim order should be dismissed before the application to strike out, where the strength of the case is focused on and is heard.

Remaining discretionary factors

Andrews J did not accept the counsel for the Commissioner's submission that a factor counting against a stay is that judicial review proceedings could be pursued by the Official Assignee if Mr Russell was bankrupted. Her Honour considered this submission speculative and noted that there was no evidence that the Official Assignee would pursue the proceeding. Her Honour agreed with Mr Russell's counsel that the nature of the judicial review proceeding is such that the Official Assignee would be unlikely to see any benefit in pursuing it. Her Honour considered that the interest in pursuing it lies with Mr Russell, not the administrator of his estate.

In regards to the "delay", Andrews J recognised that Mr Russell's case is a tax dispute with a very long history. Her Honour accepted that delay cannot be determinative to conclude that a stay should not be granted. Her Honour also accepted that the extremely long time it has already taken to determine tax issues between the Commissioner and Mr Russell is prejudicial to the public interest in maintaining the integrity of the tax system, and to the Commissioner carrying out her duties to administer the tax laws. Accordingly, her Honour noted that if there is further delay as a result of a stay of the bankruptcy proceedings, it should be for as short a time as possible.

Judicature Amendment Act 1972