Application for strike out granted
2017 case note - application for strike out of a claim alleging exceptional circumstances granted by the High Court.
On 30 June 2017 the High Court ("Court") gave judgment for the Respondent and granted the Commissioner of Inland Revenue’s ("the Commissioner") strike out application under s138H of the Tax Administration Act 1994 ("TAA").
The plaintiff disputed her liability for income tax in the years ended 31 March 2004, 2005 and 2006. In this proceeding she seeks that her "alleged debt" be cleared and that the exceptional circumstance provision under s89K of the TAA be invoked. The Commissioner disagreed and sought to strike out her claim.
The Court struck-out the plaintiff’s claim, and awarded costs on a category 2B basis.
Disputants must engage in the statutory disputes process. As the plaintiff did not file a Statement of Position ("SOP") (failing to comply with s89M of the TAA) the Commissioner had established grounds to strike out the proceeding under s 138H of the TAA.
The Commissioner assessed the disputant for income tax and shortfall penalties. The Commissioner issued a Notice of Proposed Adjustment and the disputant issued a Notice of Response. The Commissioner issued a SOP and the disputant was deemed to accept the Commissioner's proposed adjustment given the disputant had not issued a SOP. The disputant filed a statement of claim in the High Court in which she claimed that exceptional circumstances had prevented her from filing her SOP within the statutory timeframe.
The Commissioner applied to strike out the claim on the basis that the disputant had not complied with the disputes process and there were no exceptional circumstances which applied in her case.
First cause of action
Ms Vitasovich denied liability for amounts the Commissioner had assessed on the basis that she was only liable for the market value of the shareholding in the company under s HK 11 of the Income Tax Act 2004. The Court held that s HK 11 did not apply as the proceedings were in relation to the disputant's personal tax liability not that of the company.
Second cause of action
The disputant asserted that refusing to exercise her discretion not to assess a shortfall penalty was in ignorance of the law and procedures. The Commissioner had failed to acknowledge the disputant's voluntary disclosure and had made disclosures of her details to others which were an alleged maladministration.
Clark J was satisfied that this cause of action was untenable as her Honour was not convinced that any disclosure made satisfied the requirements for full disclosure.
Third cause of action
Ms Vitasovich alleged that exceptional circumstances prevented her from issuing a SOP. Under s 89K of the TAA, an exceptional circumstance is an event or circumstance beyond the control of a disputant that provides the disputant with a reasonable justification for not issuing (in this case) a SOP within the response period.
Ms Vitasovich claimed that her exceptional circumstances were:
- Wrong advice given to her by the Department;
- The Department's failure to acknowledge her voluntary disclosure;
- The Department refusing to confer with her;
- The fact the Department chose to use a "snail mail" address despite having an email address; and
- Handing out her details without permission to undesirable people and foreigners.
Ms Vitasovich went overseas in 2007 and requested that mail be sent to her Auckland address. Her Honour found that the evidence showed that while overseas Ms Vitasovich communicated by email and received correspondence sent to her Auckland address. Ms Vitasovich also confirmed that correspondence was to be by ‘snail mail'. The Court found that notice of the Commissioner's SOP was validly given by posting it to the Auckland address.
Clark J also held that the evidence did not establish that an exceptional circumstance beyond the disputant's control prevented the disputant from filing her SOP as soon as reasonably practicable after becoming aware of the failure to issue the SOP and in fact had not ever filed a SOP therefore, s 89K was inapplicable.
As the disputant failed to comply with s 89M of the TAA, the Commissioner had established the grounds for striking out the proceeding under s 138H.
Prejudice or delay - amended pleading
The Commissioner had alleged that the statement of claim was unintelligible and as such would likely cause prejudice or delay. As an alternative to striking out, Clark J considered whether the claim could be amended but found that the defects in the pleadings were such that it was not capable of cure.
Tax Administration Act 1994 ss 3, 14, 89H, 89I, 89K, 89M, 138D, 138H, 141A, 141G Income Tax Act 2004 s HK 11