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Accident Compensation Cases

Tannadyce Investments Ltd v Commissioner of Inland Revenue (SCNZ, 20/12/11)

Judgment Text

Judgment of the Court 
A
The appeal is dismissed. 
B
The appellant is to pay the respondent costs in the sum of $15,000 plus disbursements to be fixed if necessary by the Registrar. 
REASONS 
Elias CJ and McGrath J (Given by McGrath J)
Introduction 
[1]
Tannadyce Investments Ltd appeals against a judgment of the Court of Appeal1
| X |Footnote: 1
Tannadyce Investments Ltd v Commissioner of Inland Revenue [2010] NZCA 233, (2010) 24 NZTC 24,341Has Litigation History which is not known to be negative[Blue] 
striking out, as an abuse of process, a proceeding seeking judicial review of assessments of its liability to income tax made by the Commissioner of Inland Revenue. 
[2]
Under the Tax Administration Act 1994, taxpayers may challenge tax assessments in accordance with a prescribed disputes and challenge procedure. Its focus is on ascertaining the correct liability for tax and substituting an assessment for that sum where it differs from what the Commissioner determined. The 1994 Act also includes provisions that seek to shield assessments, and other decisions made under tax law, from challenge by means other than those provided by the statute. Legislation that is enacted to restrict access by a citizen to judicial review of governmental decision-making often gives rise to questions of a constitutional kind concerning the true scope and meaning of the exclusionary provisions. The present appeal is an instance. The appellant has brought its challenge in a judicial review proceeding and has not invoked the statutory regime for challenging tax assessments. 
The constitutional dimension 
[3]
Our constitutional arrangements recognise that the Parliament of New Zealand is the supreme law maker and has “full power to make laws”.2
| X |Footnote: 2
Constitution Act 1986, s 15(1). 
The courts of higher jurisdiction, however, have constitutional responsibility for upholding the values which constitute the rule of law. A central aspect of that role is to ensure that when public officials exercise the powers conferred on them by Parliament, they act within them. Judicial review is the common law means by which the courts hold such officials to account.3
| X |Footnote: 3
Recognised in s 4 of the Judicature Amendment Act 1972. 
It provides the public with assurance that public officials are acting within the law in exercising their powers, and are accountable if they depart from doing so. Statutes limiting recourse to judicial review to challenge statutory decisions accordingly raise issues of constitutional concern. This concern is reflected in the presumption of the courts, when interpreting such legislation, that it was not Parliament's purpose to allow decision-makers power conclusively to determine any question of law.4
| X |Footnote: 4
Bulk Gas Users Group v Attorney-General [1983] NZLR 129 (CA)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow]  at 133. 
Furthermore, in the present context, tax legislation will not readily be read as enabling imposition of a liability for tax without also allowing the opportunity of access to a judicial process to show that, in law, the tax should not have been imposed or imposed in the amount assessed. 
[4]
Legislation which does not on its terms prohibit judicial review, but restricts its availability, can nevertheless interfere with full supervision by the courts of the conformity of activities of government with the rule of law. The courts are reluctant to read legislation in a manner that impairs their ability to hold public officials to account in this way. 
[5]
These constitutional concerns over access to justice and accountability are also served by the general statutory principle in relation to judicial review that the existence of a right of appeal does not exclude the courts' jurisdiction in judicial review proceedings in relation to the same subject matter.5
| X |Footnote: 5
Judicature Amendment Act 1972, s 4(1). 
 
[6]
The courts nevertheless recognise that statutory challenge and appellate processes can provide a better means of judicial supervision of government decision-making than judicial review. In the context of rights of appeal and their effect on claims of breach of rights to natural justice, as an Australian leading text on judicial review argues:6
| X |Footnote: 6
Mark Aronson, Bruce Dyer and Matthew Groves Judicial Review of Administrative Action (4th ed, Lawbook Company, Pyrmont, 2009) at 496. 
 
“If there is an appeal on the merits by way of de novo hearing, to a person who is unlikely to be influenced by what occurred at first instance, the appeal may be able to provide all that procedural fairness requires. If so, it is a far superior remedy for breach of natural justice than judicial review, since it will not only redress the initial unfairness more effectively and quickly than judicial review can, but also, replace the initial decision with a fresh decision on the merits. This provides a strong justification for courts allowing such appeals to cure defects and requiring those complaining of breach of natural justice to exercise their rights of appeal instead of seeking judicial review. ”
(citations omitted)
[7]
At times, however, litigants, including taxpayers, contend that the statutory process is not adequate or effective in the circumstances which give rise to their challenge, and seek to pursue judicial review instead or ahead of a statutory challenge to an assessment. This is such a case. 
The 1976 Act 
[8]
The Inland Revenue Department Act 1974 provided that the Commissioner of Inland Revenue was charged with administration of the Inland Revenue Acts, which included the Income Tax Act 1976.7
| X |Footnote: 7
Inland Revenue Department Act 1974, s 4. 
That Act imposed liability for income tax. The Commissioner quantified that liability by annual assessments of the amount on which tax was payable by each taxpayer, and the amount of that tax.8
| X |Footnote: 8
Income Tax Act 1976, s 19. 
 
[9]
The 1976 Act contained two particular provisions in Part 2, which were protective of tax assessments. Section 26 protected their validity: 
“26
Validity of assessments not affected by failure to comply with Act— 
The validity of an assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. ”
Section 27 deemed an assessment to be correct except where challenged in statutory objection proceedings: 
“27
Assessments deemed correct except in proceedings on objection— 
Except in proceedings on objection to an assessment under Part III of this Act, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings (including proceedings before a Taxation Review Authority) either on the ground that the person so assessed is not a taxpayer or on any other ground; and, except as aforesaid, every such assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly. ”
[10]
Part 3 of the 1976 Act provided a regime for taxpayers to object to assessments of tax. Any person who had been assessed for income tax could object to an assessment.9
| X |Footnote: 9
Income Tax Act 1976, s 30(1). 
The objections were considered by the Commissioner and, if not allowed, they were heard and determined by the Taxation Review Authority or High Court. Where the objection was heard by the Court, its procedure was the same as if it were hearing a civil action in which the taxpayer was plaintiff and the Commissioner defendant. The legislation gave the Court power to cancel or vary any assessment, and to make any assessment which the Commissioner could have made or to direct the Commissioner to make such an assessment.10
| X |Footnote: 10
Income Tax Act 1976, s 33(11). 
In other words, the Court stood in the shoes of the Commissioner and determined the objection on the merits. It was able to substitute what it considered to be the correct decision. The provisions where the Authority determined the objection were similar.11
| X |Footnote: 11
See s 32(1) of the 1976 Act. 
There were rights of appeal from their decisions in each case. 
[11]
In a series of judgments, the meaning of the provisions limiting the availability of judicial review under the 1976 Act, in favour of the statutory objection and appeal process, came under close examination from the Court of Appeal. In Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd,12
| X |Footnote: 12
the Court of Appeal, in applying ss 26 and 27, drew a distinction between challenging the correctness of an assessment of tax and challenging the process of the Commissioner in making it, along with the character of the resulting assessment decision. The exclusionary provisions applied to the former and precluded judicial review, but on their true meaning they did not apply to the latter. The Court held that the legitimacy of the process, and whether or not the character of the decision was in the nature of an assessment as envisaged by the legislation, could be attacked in judicial review proceedings on administrative law grounds provided that there was a sufficient evidential foundation.13
| X |Footnote: 13
At 688. 
The Court also held that whether the particular “assessment” decision under challenge was so tentative and provisional that it was not an assessment for the purposes of the Act could be addressed in judicial review. The Court accordingly refused to strike out the judicial review proceedings brought against the Commissioner by the taxpayer. 
[12]
Subsequently, in Golden Bay Cement Co Ltd v Commissioner of Inland Revenue,14
| X |Footnote: 14
the Court of Appeal held that the Court's powers, on hearing an objection, to “confirm or cancel or vary”15
| X |Footnote: 15
Under s 33(11)(a) of the 1976 Act. 
the assessment covered every situation in which an assessment was challenged. It followed that challenges to the validity of an assessment of tax, as well as to its correctness, could be determined under the statutory procedure.16
| X |Footnote: 16
At 671—672, applying Harley Development Inc v Commissioner of Inland Revenue [1996] 1 WLR 727 (PC)Has Cases Citing which are not known to be negative[Green] 
Importantly, the Court added that it would only be in exceptional cases, typically involving an abuse of power, that the Court would entertain an application by a taxpayer who had chosen not to appeal under the statutory procedure for judicial review of a decision.17
| X |Footnote: 17
At 672. 
The Court of Appeal has also recognised that in objection proceedings the Taxation Review Authority's examination of the correctness of an assessment in objection proceedings could correct defects in the Commissioner's process in making an assessment.18
| X |Footnote: 18
Dandelion Investments Ltd v Commissioner of Inland Revenue [2003] 1 NZLR 600 (CA)Has Litigation History which is not known to be negative[Blue]  at [50]—[64]. 
 
[13]
The position where a taxpayer brought separate objection and judicial review proceedings, which raised the same issues concerning validity, was addressed by the Court in New Zealand Wool Board v Commissioner of Inland Revenue.19
| X |Footnote: 19
New Zealand Wool Board v Commissioner of Inland Revenue (1997) 18 NZTC 13,113 (CA)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow] 
A majority of the Court, in a judgment delivered by Richardson P, said that ordinarily the interests of justice would require that the proceedings be consolidated, and only in exceptional cases should a judicial review challenge to validity be heard separately and ahead of the statutory proceedings:20
| X |Footnote: 20
At 13,116 per Richardson P, Gault, McKay and Keith JJ. 
 
“That may be appropriate, for example, where because of its tentative or provisional character a decision is arguably not an ‘assessment’ for the purposes of the Act (Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow] ) or where crucial natural justice issues impinge on the validity of the process and can conveniently be considered separately; or more generally where the taxpayer would be unduly prejudiced by consolidated proceedings. No doubt there may be others. ”
[14]
To similar effect, in Miller v Commissioner of Inland Revenue,21
| X |Footnote: 21
Miller v Commissioner of Inland Revenue [2001] 3 NZLR 316 (PC)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow] 
the Privy Council said that despite the broad language of the exclusionary section, judicial review was not precluded if proper grounds were made out relating to the legitimacy of the process adopted by the Commissioner and the validity of the outcome. As well, in some circumstances the making of an assessment, whether correct or not, might be an abuse of power.22
| X |Footnote: 22
At [14]. 
The Privy Council also said that:23
| X |Footnote: 23
At [18] per Lord Hoffmann. 
 
“It will only be in exceptional cases that judicial review should be granted where the challenges can be addressed in the statutory objection procedure. Such exceptional circumstances may arise most typically where there is abuse of power: Harley Developments Inc v Commissioner of Inland Revenue at 736. But they have also been held to arise where the error of law claimed is fatal to the exercise of statutory power and where it would be wasteful to require recourse to the objection procedure: Golden Bay Cement Co Ltd v Commissioner of Inland Revenue at 671. ”
[15]
This line of authority is consistent with the approach taken to challenges to administrative decisions in areas other than taxation. New Zealand courts are generally reluctant to entertain judicial review where there is a right of appeal against a statutory decision both on questions of law and where the remedy of appeal provides a more appropriate process.24
| X |Footnote: 24
Bulk Gas Users Group v Attorney-General [1983] NZLR 129 (CA)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow]  at 136; Fraser v Robertson [1991] 3 NZLR 257 (CA)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow]  at 260. 
The court may, for instance, refuse to grant relief in the exercise of its discretion where the merits of a decision can be better recognised under a statutory appellate process,25
| X |Footnote: 25
Fraser v State Services Commission [1984] 1 NZLR 116 (CA)Has Cases Citing which are not known to be negative[Green]  at 123 per Cooke J. 
which adequately protects the appellant's interests.26
| X |Footnote: 26
Auckland Acclimatisation Society Inc v Sutton Holdings Ltd [1985] 2 NZLR 94 (CA)Has Cases Citing which are not known to be negative[Green]  at 103 per Cooke J. 
Much depends on the context and whether the statutory process provides the more convenient and effective method for seeking redress in the particular case. 
[16]
Under accident compensation legislation, a person who has a right to apply for a statutory review, or to appeal, has no other remedy in relation to the matter in any court or tribunal. The process provides for appeal to the District Court, and then to the High Court with leave. The Court of Appeal has held that if a challenge to a decision for error of law is amenable to resolution by the statutory process, the restrictive presumption of interpretation does not apply.27
| X |Footnote: 27
Ramsay v Wellington District Court [2006] NZAR 136 (CA)Has Litigation History which is not known to be negative[Blue]  at [31]; Dean v Chief Executive of the Accident Compensation Corporation [2007] NZCA 462, [2008] NZAR 318Has Litigation History which is not known to be negative[Blue]  at [6]. 
If, however, a challenge is not amenable to the statutory procedure, other remedies available through the High Court are not excluded by the legislation. 
[17]
Reflecting that general approach in relation to income tax assessments, the courts recognised that under the 1976 Act there were cases where justice would be better served by allowing judicial review challenges to proceed, and the passages cited from the judgments of the Court of Appeal and the Privy Council28
| X |Footnote: 28
At [13] and [14] above. 
provide a helpful explanation of the type of cases in which exceptional circumstances were seen as arising under the 1976 Act. 
The 1994 Act: legislative history 
[18]
The relevant provisions in the Income Tax Act 1976 were succeeded by those in the Tax Administration Act 1994.29
| X |Footnote: 29
The original forms of ss 109 and 114 of the 1994 Act respectively replicated ss 27 and 26 of the 1976 Act. 
In 1995, new provisions concerning tax administration were inserted stipulating that the core function of the Commissioner of Inland Revenue was the care and management of taxes covered by the Inland Revenue Acts.30
| X |Footnote: 30
Section 6A of the 1994 Act, as amended by s 4 of the Tax Administration Amendment Act 1995 (discussed in BNZ Investments Ltd v Commissioner of Inland Revenue [2008] NZSC 24, [2008] 2 NZLR 709Has Litigation History which is not known to be negative[Blue]  at [51]). 
Quantification, assessment and collection of tax due remain the essential characteristics of the Commissioner's role. The 1995 amendment also imposes on every Minister and official having responsibilities under tax legislation an overarching duty “at all times to use their best endeavours to protect the integrity of the tax system”.31
| X |Footnote: 31
Section 6(1) of the 1994 Act as amended by s 4 of the Tax Administration Amendment Act 1995. 
We return to these provisions later in this judgment. 
[19]
In 1996, the 1994 Act was amended to provide a new process for addressing disputes between the Commissioner and taxpayers prior to the Commissioner making an assessment. The amending legislation32
| X |Footnote: 32
Tax Administration Amendment Act (No 2) 1996. 
also provided for challenges to such assessments by taxpayers bringing proceedings before hearing authorities — either the High Court or Taxation Review Authority. Under the new disputes process the Commissioner may issue one or more notices of proposed adjustments in respect of a tax return or existing assessment which identify the issues arising between the Commissioner and the taxpayer.33
| X |Footnote: 33
Tax Administration Act 1994, ss 89B and 89F. 
A taxpayer is also able to issue such a notice to the Commissioner if the Commissioner has issued an assessment or determination without first issuing a notice of proposed adjustment.34
| X |Footnote: 34
Tax Administration Act 1994, s 89D(1). 
The taxpayer is able to reject such proposed adjustments within two months in a notice of response, which outlines the reasons for rejection.35
| X |Footnote: 35
Tax Administration Act 1994, s 89AB(2) and 89G(1) and (2). 
This closely prescribed process requires disclosure by each party of the issues and their position on them.36
| X |Footnote: 36
Tax Administration Act 1994, s 89M. 
It culminates in the Commissioner making an assessment of tax.37
| X |Footnote: 37
Tax Administration Act 1994, s 113. 
If a dispute is not resolved during this process, the matter will generally be referred to the Inland Revenue Department's Adjudication Unit to consider the correct application of the law. This is an administrative process not covered by legislation and its operation does not preclude the Commissioner from making an amendment to an assessment. The 1996 Act also provided for challenges to such assessments by taxpayers bringing proceedings in the High Court or Taxation Review Authority. While the disputant taxpayer decides in which forum to bring the challenge, there is provision for the High Court to transfer the proceeding to the other hearing authority.38
| X |Footnote: 38
Tax Administration Act 1994, s 138N(1)(b). 
 

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