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22 Apr 2015
Appeal Status

High court upholds taxation review authority decisions and strikes out challenges finding them to be an abuse of process

2015 case note - High Court upholds TRA decisions relating to Trinity Scheme and strikes out challenges - stayed case, mutuality of interest, abuse of process.

Muir & Others v Commissioner of Inland Revenue


The High Court struck out the challenge proceedings of Dr Muir and others in relation to assessments for various tax years ranging from 1997 to 2010. The High Court also dismissed appeals against decisions of Judge Barber striking out Dr Muir's challenges for the 1998 to 2006 years and refusing to recall his strike-out decision.


The 11 plaintiffs were investors or LAQCs of investors in the Trinity Scheme. The challenges in this proceeding had been stayed under the TAA awaiting determination of the test cases which were the Trinity challenges determined by the Supreme Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue ([2008] NZSC 115). The challenges had been consolidated with two appeals from the Taxation Review Authority ("TRA").  

With leave from the Court, the majority of the plaintiffs either discontinued their challenge proceedings or took no part in the hearing. The remaining parties were the first plaintiff, Dr Muir, the fourth plaintiff, Mr Maude, the eighth plaintiff, Hillvale Holdings Ltd, and the eleventh plaintiff, Waikato Residential Properties Ltd. Mr Maude, Hillvale Holdings Ltd and Waikato Residential Properties Ltd advised that they would take no active part in the hearing and would simply adopt the submissions made by Dr Muir.

Accordingly, the Court was considering:

  1. challenge proceedings by Dr Muir and others to the 2007 to 2010 assessments and Dr Muir's challenge to the 1997 assessment; and
  2. appeals by Dr Muir from decisions of Judge Barber in the TRA striking out Dr Muir's challenges for the 1998 to 2006 years and refusing to recall his strike-out decision.

The Commissioner of Inland Revenue ("the Commissioner") submitted that the challenges, while fresh challenges in the sense that they related to later or different assessments, nevertheless arose out of the Trinity Scheme and were identical to the tax challenges already determined by the Supreme Court. The challenges before the Court sought to re-litigate the legal analysis of the Trinity Scheme. However, the issue was subject to the doctrine of issue estoppel with the result that it was an abuse of process to issue the current proceedings.

The Commissioner also submitted that Dr Muir's appeals should be dismissed for the same reasons.

Dr Muir submitted that the Commissioner made incorrect tax assessments in so far as the "black letter" analysis of the Trinity Scheme was not based on the accrual rules. Dr Muir submitted that the Trinity Scheme required analysis under subpart EH of the Income Tax Act 1994 ("the Act") and not under subpart EG of the Act, which had been the basis for the Courts' analysis of the Trinity Scheme. Dr Muir submitted that the application of subpart EH is mandatory where there is a financial arrangement and that it was unlawful to fail to apply it. He contended that subpart EH required there to be a calculation of a core acquisition price in order to determine the interest to be spread, and thereby see what is left to depreciate under subpart EH.


The Court followed the approach summarised in Attorney-General v Prince and Gardner ([1998] 1 NZLR 262 (CA) at 267)and adopted in Couch v Attorney-General ([2008] NZSC 45, [2008] 3 NZLR 725) regarding- strikeout applications. This approach dictates that before the Court may strike out proceedings, the causes of action must be so clearly untenable that they cannot possibly succeed. The jurisdiction to strike out is to be used sparingly, although the fact that the application requires extensive argument does not exclude the jurisdiction.

The Court cited the summary of Fisher J in Russell v Taxation Review Authority ((2000) 19 NZTC 15,924 (HC) at [19] and [20]) regarding its position on applications alleging abuse of process. In that case Fisher J held that proceedings can be dismissed in whole or in part as an abuse of the process of the Court where the cause of action pleaded could not succeed because of the existence of an issue estoppel with respect to one or more of the essential elements of the cause of action, or where the pleaded cause of action represents an attempt to litigate or re-litigate issues which ought properly to have been included in the previous proceedings.

The Commissioner's case was that Dr Muir stood to gain from the Trinity scheme because he was the architect, advisor and investor, and the guiding hand behind Redcliff Forestry Venture Ltd. The challenges and appeal were seeking to re-litigate the legal analysis of the Trinity Scheme and this was an abuse of process.

The primary basis for the strike-out application and dismissal here was that the issue sought to be raised had been finally determined by the Supreme Court in three judgments. There was a final decision as to the appropriate analysis of the Trinity Scheme and an issue estoppel because the Supreme Court had determined all matters between the plaintiffs and appellant, their privies and the Commissioner.

The Court found that there was "no basis for concluding that Dr Muir was not a privy to the parties in Ben Nevis" with the result that the Supreme Court judgment is binding upon him. To allow re-litigation of the issue would be an abuse of process.

The Court then went on to briefly refer to the positions of the remaining plaintiffs and found they also were clearly privies and bound by the Supreme Court judgments.

The Court concluded that that the current plaintiffs were estopped from disputing the determinations of the Supreme Court judgments as binding on them as if they were parties to those proceedings. They therefore were estopped from raising arguments concerning the treatment of the Trinity Scheme and appropriate assessments.

The Court also concluded that this was a clear case of an abuse of process which must not be allowed to continue. It may also be viewed as a collateral attack on the final decisions of the Supreme Court and is equally an abuse of process on that ground.

For the above reasons, the Court held that the Commissioner is entitled to an order striking out the challenge proceedings and also an order dismissing the appeals against the TRA decisions.

Tax Administration Act 1994