Judicial Review? No Thanks! – July 2009
MIKE LENNARD, Tax Barrister
In this article, Mike Lennard looks at the historically unsuccessful attempts by various taxpayers to challenge the validity of assessments by Inland Revenue by way of judicial review proceedings.
God loves a trier, so it is said, so a disparate group of taxpayers can take comfort from the belief that they are storing up spiritual rewards rather than winning in Court. These are taxpayers who have gone down the long road of taking judicial review proceedings against the CIR as well as, or instead of, challenging tax assessments under the process in Part VIIIA of the Tax Administration Act 1994 TAA 1994). In recent cases various taxpayers ranging from a multinational bank to a litigant in person have found that judicial review is a hard and rocky road and nothing good lies at the end.
What is Judicial Review?
Judicial review, as the name suggests, involves the Courts examining the operation of a government or a public body, to see whether it meets criteria of lawfulness, substantive fairness and reasonableness, and if necessary, ordering a remedy.
Historically judicial review of administrative action developed from a set of centuries-old prerogative writs employed from time to time by the Crown to obtain court orders controlling some aspect of public office. These writs, with exciting names such as mandamus, certiorari, prohibition and quo warranto, each developed their own characteristics in a rather piecemeal fashion, and became hedged around with procedural oddities. In a move to standardise and simplify the law, the Judicature Amendment Act 1972 provided a single procedure enabling litigants to apply for judicial review and obtain the relief which would have been available in any one or more of these prerogative writs[1].
The procedural rules governing the bringing and conduct of judicial review applications, and the remedies available, are now to be found in Part 30 of the High Court Rules.
The ambit of Judicial Review
Judicial review by its nature is intended to provide a flexible response to a variety of problems with public administration. This means that its ambit is wide and somewhat vague at the edges. However, the following things can be said:
· Judicial review is mainly concerned with process, rather than outcome. Where a government department has done the right things, the fact that it may have got the wrong answer is almost never something that can be put right in judicial review;
· The emphasis of judicial review remedies lies with putting things right, not providing compensation. So if it is possible for an error to be rectified by the relevant department doing it again, the right way, then that will usually be the remedy which is ordered.
· Relief in judicial review proceedings is discretionary. Therefore, if there is another way of getting the error rectified, then that way will be preferred. This is especially the case if there is statutory process expressly designed to rectify such errors.
The dismal history of attempts to judicially review assessments
Many cases involve applications by taxpayers to declare an assessment invalid on the basis that the making of the assessment was contrary to previous conduct by the CIR, previous assurances or assessments made, or the CIR’s policy statements.
In a series of cases[2] in the 1980s and 1990s, the Courts refused to find that any previous statements, course of conduct or previous assessments fettered the CIR’s ability (and obligation) to assess the taxpayer on the basis of an honest appreciation of the law and the facts. In another such application, CIR v Ti Toki Cabarets (1989) Ltd [2001] 1 NZLR 147 (CA), Gault J, delivering the judgment of the Court, said that the earlier cases just referred to:
“… were merely reiterating that judicial review cannot frustrate the honest discharge by the Commissioner of his statutory duty to assess, yet can be invoked to address procedural error, defects resulting in ultra vires, unlawfulness and such matters as bad faith, abuse of power and errors of law going to the legitimacy of the process rather than to the correctness of the decision. Certainly they do not contemplate that the correctness of every assessment can be challenged in review proceedings on the ground that it was arrived at on an erroneous view of the law – that would be entirely contrary to s 109 and its predecessors. “
In Miller v CIR [2001] 3 NZLR 316 (PC), one of the grounds for judicial review action argued by the taxpayers was that the CIR did not make a thorough analysis of whether s 99 ITA 1976 applied, as required by the Commissioner’s policy statement on tax avoidance. The Privy Council did not accept this, Lord Hoffman saying ([2001] 3 NZLR 316 at para [18]):
“It will only be in exceptional cases that judicial review should be granted where 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 p 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 p 671.”
Westpac in the Court of Appeal
The Westpac Banking Corporation (Westpac) engaged in a series of “structured finance” transactions in the second half of the 1990s and the early years of this decade. In respect of one, Westpac obtained a binding ruling from the IRD. Others of these structured finance transactions were later assessed by the CIR as tax avoidance arrangements.
Westpac issued High Court proceedings under Part VIII A of the TAA 1994, challenging the correctness of the CIR’s tax avoidance assessments. Undeterred by the history of such applications, these proceedings contained an additional cause of action seeking judicial review by challenging the validity, as opposed to the correctness, of the assessments on administrative law grounds.
In the judicial review cause of action Westpac argued that the assessments in issue were invalid because:
· They were made despite inconsistent views within the Inland Revenue Department on whether the transactions amounted to tax avoidance arrangements – the inconsistency appeared to be between the investigations staff and those who prepare rulings;
· They were in breach of the Westpac’s legitimate expectations, which apparently were that the same treatment would be applied to the disputed transaction as was applied to the transaction which was subject to the ruling;
· They were not honest or genuine assessments at all.
The CIR applied to strike out this cause of action. The strike-out application was granted by the High Court (Westpac Banking Corporation v CIR (2008) 23 NZTC 21,694) and the appeal considered by the Court of Appeal which gave a decision on 20 February of this year (Westpac Banking Corporation v CIR (2009) 24 NZTC 23,340). The Court of Appeal effectively affirmed existing law, deciding that:
· Established principles in relation to applications for judicial review in tax cases should not be widened; and
· Review was available of assessments that were not truly assessments at all and, in exceptional cases, assessments which might have involved maladministration;
· The commencement of judicial review in other than exceptional circumstances is an abuse of process; and
· Judicial review is not a valid alternative vehicle for collaterally challenging tax assessments.
Westpac’s judicial review remained struck out.
Other recent cases
No survey of hopeless litigation would be complete without JG Russell and his hapless clients. Managed Fashions Limited v CIR (unreported, High Court, Auckland Registry, CIV-2008-404-3018, 2 April 2009, Doogue AJ) was an application to set aside a statutory demand. Where it seems that all other arguments were failing, the taxpayer’s counsel refined his argument to include a submission that the taxpayer would seek judicial review to obtain orders to compel the CIR to re-assess the core tax which underlay the demand in a way that was consistent with the Commissioner’s alleged obligations. Applying the Westpac decision, Doogue AJ held that:
“In my judgment, the imponderables, difficulties and uncertainties that lie ahead for the applicant if it now starts judicial review proceedings are such that it is impossible to say that there is a substantial dispute.”
In Amaltal Fishing Co Ltd v CIR (2009) 24 NZTC 23,313 (HC), Mallon J considered the situation of a fishing company which had previously missed the boat for filing a tax challenge (see TRA Case Y7 (2007) 23 NZTC 13,066, and on appeal to the High Court: Amaltal Fishing Co Ltd v CIR (2007) 23 NZTC 21,639). The taxpayer then filed judicial review proceedings which contended that the CIR’s assessments were ultra vires because they were time barred; that the CIR had issued a provisional or tentative assessment that did not accord with his honest belief as to the tax payable; that the CIR’s failure to issue assessments within a reasonable time breached s 27 New Zealand Bill of Rights Act 1990; and that the assessment for one year took into account irrelevant considerations and was unreasonable. Mallon J held that these grounds of challenge failed because they could have and should have been raised via the statutory objection procedure, being a challenge to the validity or the correctness of the assessment, and that the taxpayer had not demonstrated exceptional circumstances which were needed to make judicial review available.
The final nail in the coffin?
Westpac sought leave to appeal to Supreme Court against the Court of Appeal decision covered above. The Supreme Court declined leave (Westpac Banking Corporation v CIR [2009] NZSC 36), observing that it was “satisfied that it is not reasonably arguable that the Court of Appeal’s approach to the law, including its view of the effect of the policy of the legislation, was wrong.”
Summary
In summary, judicial review will be available to remedy clear maladministration by the IRD. The remedy, if there is such clear maladministration, will usually be an order that IRD do it again but do it correctly. Judicial review will be available when what is being challenged is not an assessment – for example, a refusal to grant hardship relief[3]. Judicial review may be available to obtain a declaration that what purports to be an assessment is not, because it was not lawfully made[4] – but the circumstances in which that will be possible are rare.
However, it should be crystal-clear by now that judicial review will not be available to attack an assessment, either directly, on the basis of an attack on the process leading up to the assessment, or on the basis of alleged inconsistent decisions, assessments or views held by the Department. Taxpayers who file judicial review proceedings as a collateral attack on the correctness of an assessment are on a hiding to nothing.
[1] Daemar v Gilliand [1979] 2 NZLR 7 (CA), at p 21.
[2] See for example CIR v Lemmington Holdings Ltd [1982] 1 NZLR 517 (CA), Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655 (CA) and CIR v New Zealand Wool Board (1999) 19 NZTC 15,476 (CA).
[3] Eg W v CIR (2005) 22 NZTC 19,602 (HC).
[4] The classic example being CIR v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA)