Judicial Review Revisited – Tannadyce
Judicial Review Revisited – Tannadyce
MIKE LENNARD, Tax Barrister
In this article, Mike Lennard looks at the latest chapter in the long history of unsuccessful attempts by various taxpayers to challenge the validity of assessments by Inland Revenue by way of judicial review proceedings.
In May last year I wrote that “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.” In Tannadyce Investments Ltd v Commissioner of Inland Revenue [2010] NZCA 233 the Court of Appeal has recently examined another instance of judicial review – this time alleging maladministration in the context of a defence to a winding-up application – and again reinforced the relative lack of usefulness of this way of challenging tax assessments or defending debt collection.
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.
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.
Tannadyce
The Tannadyce case had its origins in a long-running and well-publicised dispute between its director, a Mr Henderson, and Inland Revenue.
There were two appeals before the Court of Appeal; they were termed the “statutory demand appeal” and the “judicial review appeal”. Both appeals apparently relied (among others) on the same factual allegation – that Inland Revenue had knowingly and falsely denied having documents which it did in fact have and which were essential in order for Tannadyce to file correct tax returns (thereby displacing the allegedly incorrect default assessments raised by the CIR).
Statutory Demand Appeal
The statutory demand appeal represented an attempt to prevent the Commissioner succeeding in winding-up proceedings against Tannadyce. Under section 290 of the Companies Act 1993 a statutory demand (the prerequisite for winding-up proceedings) may be set aside if there is a substantial dispute whether or not the debt is owing or is due. Tannadyce said that there was such a dispute, but by the time this assertion was made Tannadyce was well outside the statutory two-month “response period” for disputing the assessments in question under Part IVA and/or Part VIIIA of the Tax Administration Act 1994. Undaunted by this, Tannadyce said that the validty of the assessments would be attacked in judicial review proceedings, on the basis that Inland Revenue’s alleged misconduct so tainted the process that what purported to be assessments were not such, at fact and law.
In the High Court[1], Associate Judge Christiansen considered a large amount of evidence and robustly concluded that the allegation made by Mr Henderson on behalf of Tannadyce about Inland Revenue deliberately withholding financial information was “nonsensical”.
The Judicial Review Appeal
Tannadyce filed judicial review proceedings a short time before the hearing before Associate Judge Christiansen, so the Associate Judge was considering the statement of claim as originally filed. After the statutory demand decision, Tannadyce filed its first amended statement of claim. This is the document which was considered in the High Court by French J in 2009 in a strike-out application brought by the CIR[2]. It appears from the decision that this amended statement of claim pleaded a large number of bad things alleged to have been done by the CIR’s officers. French J found that with one exception, none of the allegations made against the CIR and IRD in the judicial review claim were capable of constituting exceptional circumstances, and that the claim should be struck out to that extent.
The exception was the allegation that the IRD was knowingly in possession of the documentation which it repeatedly and falsely denied possessing and which the taxpayer required in order to file tax returns and avoid a default assessment. French J found that the allegation as to the IRD’s possession of documentation, if proven to be true, would amount to conscious maladministration. However, she cautioned that there was no evidence about the type of information held by the IRD, such as whether it included information as to the financial affairs of the taxpayer; whether or not the information could have assisted the taxpayer to file its returns; and whether the IRD used any of the information in the default assessments, and that therefore it could well be that in due course it would be established that the taxpayer’s allegations were nonsensical.
The constant invocation of the phrase “conscious maladministration” flows from the Court of Appeal’s judgment last year in Westpac Banking Corporation v CIR [2009] 2 NZLR 99 Westpac where the Court, largely affirming and consolidating existing law, emphasised that:
· Established principles in relation to applications for judicial review in tax cases should not be widened;
· Review was available of assessments that were not truly assessments at all and, in exceptional cases, assessments which might have involved conscious 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.
The Appeal
The CIR appealed the decision of French J and Tannadyce appealed the decision of Christiansen AJ. Both appeals were heard together and the judgment covers both appeals. As the Court of Appeal decision, delivered by O’Regan J, noted:
“[T]he essential legal issue in both cases is whether the decision to assess Tannadyce’s tax liability is open to judicial review. However there are procedural differences between the two cases, which mean the issues for determination in each are not identical.”
In relation to the statutory demand appeal, Tannadyce had to show “an “arguable case” that its judicial review proceedings may succeed”.
In relation to the judicial review proceedings, “the essential question is whether the judicial review claim is either so clearly untenable that it cannot possible succeed or is otherwise an abuse of process”. It was noted that in Commissioner of Inland Revenue v Abattis Properties Ltd (2002) 20 NZTC 17,805 the Court had held that it amounts to an abuse of process to commence judicial review proceedings unless the taxpayer can point to exceptional circumstances justifying that course.
The Court considered the rival contentions as to how closely any conscious maladministration was linked with the claimed inadequacy of the assessment. The taxpayer argued that judicial review proceedings where there had been conscious maladministration in the process leading up to the assessment, regardless of whether it had any effect on the bona fides or genuineness of the assessment. On the other hand the CIR argued that to qualify as a basis for judicial review, the conscious maladministration had to lead (at least arguably) to the assessment under challenge in the judicial review proceeding not being an assessment at all, or at least not one of the kind described in s 109 of the Tax Administration Act 1994.
The Court of Appeal considered it clear that the Commissioner’s position was the correct one, emphasising the conclusion in its Westpac decision:
There is thus no allegation of conscious maladministration which relates directly to the issuing of the amended assessment.
Applying this law to the facts, the Court held that the allegations, if true, could well amount to conscious maladministration, but there was no connection in the pleadings or on the evidence between that maladministration and any fatal defects in the assessments:
Similarly, there is no pleading that the assessments issued in May 2004 and those issued in October 2006 did not represent the honest belief of the IRD officer making the assessments on the information available to her that the income tax liability of Tannadyce and its loss position was as disclosed in the relevant assessments and loss determinations..
The effect of this finding was that the judicial review appeal succeeded, and the statutory demand appeal failed.
Summary
In summary, this judgment reinforces that judicial review will only be available to challenge an assessment where there has been clear maladministration by the IRD, which has the effect that the assessment is not really an assessment in fact or law. 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. Judicial review will also be available to enforce procedural rights or immunities; as the Court of Appeal said:
[This decision] does not immunise the Commissioner from judicial review in all circumstances. For example, a judicial review proceeding seeking an order that the Commissioner return documents would not be struck out in the same manner as the judicial review claim in this case, because it would not be a challenge to an assessment. We make no comment on the possible merits of such a claim; rather, we observe that there would be no legal impediment to the pursuit of such a claim if it did, in fact, have merit.
The judgment reinforces the general principle that taxpayers who file judicial review proceedings as a collateral attack on the correctness of an assessment are on a hiding to nothing.
[1] Tannadyce Investments Ltd v CIR (2009) 24 NZTC 23,036
[2] Tannadyce Investments Ltd v CIR (2009) 24 NZTC 23,493
[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)