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03 Dec 2014
Appeal Status
Not appealed

Unsuccessful application for review

2014 case note – unsuccessful application for review - security for costs, disputes process, strike out.

Mawhinney v Commissioner of Inland Revenue


This decision relates to an application for review of an Associate Judge's decision filed by Peter William Mawhinney as trustee of the Forest Trust ("the Trust"). The decision which the Trust sought to review was that of Associate Judge Christiansen striking out part of the Trust's Statement of Claim in damages and ordering the Trust to pay $40,000 in security for costs (Mawhinney v Commissioner of Inland Revenue [2014] NZHC 1554).

The underlying dispute involves a claim for a GST refund of $67,011.65, which the Commissioner of Inland Revenue ("the Commissioner") has reassessed to nil pursuant to s 89C(eb) of the Tax Administration Act 1994 ("TAA").

On 12 July 2012, the Trust filed a statement of claim containing claims for 19 separate breaches of statutory duty; a claim for money had and received; and claims for six breaches of duty of care. The Trust sought damages and/or compensation of $5,113,810.72.

The Trust has filed two further iterations of its Statement of Claim, the third of which contained an additional fourth cause of action purporting to be a challenge under Part 8A of the TAA.

In April 2014, the Commissioner applied to strike out the fourth cause of action and for further security for costs. These matters were heard by Associate Judge Christiansen who delivered his judgment on 4 July 2014 (Mawhinney v Commissioner of Inland Revenue [2014] NZHC 1554). Associate Judge Christiansen determined that the fourth cause of action was a duplication of process (being already subject to the TAA disputes procedures, determined by Cooper J (Mawhinney v Commissioner of Inland Revenue [2013] NZHC 3564), and before the Court of Appeal (Mawhinney v Commissioner of Inland Revenue [2014] NZCA 450; (2014) 26 NZTC 21-101 per Ellen France J), was prima facie vexatious and should be struck out.

Further, the Associate Judge ordered security for costs in the sum of $40,000 to be paid into Court and to be held pending determination of the proceeding. He stayed the proceeding until lodgement of the payment.


The application for review was dismissed.

Strike-out application

The Trust submitted that the Associate Judge erred in holding that the fourth cause of action was duplicitous in the sense it had already been determined by Cooper J, arguing that the disputes procedure set out in Part 4A of the TAA had been concluded. Further, it said the Associate Judge had erred in striking out the fourth cause of action on the basis that no challenge notice had been issued because only s 138B(3) of the TAA requires the issuance of a challenge notice. The Trust submitted that Cooper J concluded that the dispute should be determined by a challenge under s 138B(1) of the TAA.

The Trust further submitted that the Associate Judge erred in his interpretation of Allen v Commissioner of Inland Revenue ([2006] NZSC 19, [2006] 3 NZLR 1,because that was a decision under s 138B(3), not s 138B(1). Once the Part 4A disputes procedure had come to an end, it was up to the taxpayer to choose the forum for a challenge under Part 8A (either the Taxation Review Authority or the High Court) and that adding the fourth cause of action was an appropriate response to Cooper J's decision.

The Commissioner, in reply, pointed out that s 138B(3) of the TAA applies to a situation where the taxpayer is the initiator of the dispute, and as the Trust is the initiator of this dispute, it must apply. The Commissioner also drew Justice Brewer's attention to Cooper J's determination that the Part 4A procedure must be determined by the statutory processes before any challenge under Part 8A arises. Accordingly, no cause of action purporting to invoke Part 8A could stand.

The Court held that the Associate Judge was right to strike out the fourth cause of action as the Trust was bound by the decision of Cooper J that the issue of the assessment of GST which is the subject of the fourth cause of action is to be decided within the statutory disputes and challenge procedures in the Act. Justice Brewer reiterated an assertion that the Part 4A procedure has concluded is itself a matter for the Part 4A process.

Security for costs application

Mr Mawhinney submitted that the Associate Judge erred by focusing on the ability of the Trust to pay an award of costs; rather, he should have focused on whether Mr Mawhinney, as plaintiff, was able to pay costs. This submission is based on the premise that a Trust is not itself a legal person and can only act through trustees.

Mr Mawhinney further submitted that even if security for costs should have been ordered, the Associate Judge should not have directed that the security be paid into Court in money, as security is able to be provided by other means and it is up to the plaintiff how security for costs should be satisfied.

In response, the Commissioner submitted that the Associate Judge was correct to look to the assets of the Trust because the Trust is the plaintiff, not Mr Mawhinney acting in his personal capacity. Even if a trustee is personally liable, the fact that he would have recourse to the assets of a third party (referred to at [15] of Brewer J's judgment) for security might in itself suggest that security is appropriate (Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017); and r 5.45 of the High Court Rules 2008 says that an order for security can be by way of payment or by some other means. The Associate Judge was entitled to prefer cash.

Justice Brewer determined that Associate Judge Christiansen did not make an error in the exercise of his discretion, commenting that having considered the matters he was required to consider, the Associate Judge made the decisions that were open to him.

His Honour found there was no doubt that the Trust could not meet an order for costs out of its own resources and that it was clear that Mr Mawhinney had not provided sufficient evidence to show that he, personally, could meet any award of costs.

Justice Brewer further determined that r 5.45 of the High Court Rules leaves it up to the Judge to decide whether security should be given by paying a sum into Court or by giving some other security.


The Court further ordered that the Trust could apply to the Associate Judge to vary his order to allow security for costs to be provided by a second mortgage over the property. However, the Trust would still have to satisfy the Associate Judge that this would constitute proper security.

Judicature Act 1908, Tax Administration Act 1994