Service of Notice of Response sent to incorrect address sufficient

Summary

This was an appeal against the decision of a Taxation Review Authority, AAP Willy, in which he held the taxpayer was entitled to deregister for GST purposes.

Background

The High Court allowed the Commissioner's appeal in part, consistently with the Court of Appeal's decision in Lopas v The Commissioner of Inland Revenue (2006) 22NZTC 19,726, holding that the taxpayer was not entitled to deregister for GST.

The Commissioner also appealed a finding of the Taxation Review Authority (TRA) that the evidence of the tax inspector was wrong, and that he knew this to be wrong at the time he gave it. On this issue, His Honour stated that he was not persuaded that the TRA was wrong. The Court, however, described the failing as an omission, which the TRA might have regarded as an unacceptable degree of carelessness. The Court also pointed out the TRA did not say the tax inspector was untruthful, and accepted the letter was posted when the inspector said it was. The Court indicated the criticism may have focused more on a degree of carelessness, which the TRA found inexcusable.

The Court also dismissed the taxpayer's cross appeal on the issue of service of the notice of response (NOR). It held (1) the NOR had been served in time, (2) the evidence of the accountant that he had taken the NOR to the taxpayer was not subject to legal professional privilege and was not therefore inadmissible, and (3) was sufficient to prove service of the NOR in time.

Facts

The taxpayer de-registered himself for GST in November 1999, claiming that his income for the succeeding 12months would be less than $30,000. However, the Commissioner re-registered him in August 2000. The taxpayer then issued a NOPA on 9 October 2000, dealing with de-registration. The Commissioner responded by issuing a NOR on 29 November 2000, sending it not to the tax agent who had been nominated in the NOPA, but to the accountant who had served the NOPA. Upon receipt of the NOR, the accountant arranged a meeting with the taxpayer and his solicitor on 30 November 2000. At the meeting, the accountant "tabled" the NOR.

A dispute arose between the taxpayer and the Commissioner as to whether the taxpayer was entitled to de-register himself, and as to whether the NOR had been properly served. The TRA held that the taxpayer was entitled to de-register himself. The TRA also held that the NOR had been served on the taxpayer, even though the method of service did not comply with section 14 Tax Administration Act 1994. Nevertheless, that method was not fatal as section 14 TAA  was facilitative, not mandatory. The TRA also held evidence of the meeting between the taxpayer and the accountant was admissible to prove that the taxpayer did receive the NOR.

The Commissioner appealed against the TRA's decision, on both the issue of entitlement to de-registration and on the issue relating to whether the accountant was authorised to receive the NOR. However, the parties were agreed that the Commissioner‘s appeal relating to the taxpayer's entitlement to de-registration should be allowed, following the Court of Appeal's decision in Lopas v The Commissioner of Inland Revenue (2006) 22 NZTC 19,726. The remaining issue thus requiring determination was that of service of the NOR.

Even though the TRA had determined that issue in the Commissioner's favour, the Commissioner appealed against certain findings of the TRA in relation to that issue. The Commissioner contended that the TRA was wrong to hold that the accountant was not an agent for the purposes of section 14 TAA, and that the TRA was wrong to hold that a tax inspector had given evidence about service he knew to be wrong.

The taxpayer cross-appealed against the TRA's decision on the same issue. He contended that (a) the NOR had not been served because compliance with section 14 TAA was mandatory and the accountant who prepared the NOPA was not his agent; (b) the evidence that he had received the NOR was not admissible because he had received it at a meeting that was the subject of legal professional privilege; and (c) that evidence was inadequate because it proved only that the NOR had been discussed at the meeting.

In response, the Commissioner contended that he had complied with section 14 TAA, because he had sent the NOR to the accountant, who was authorised to act on behalf of the taxpayer. The Commissioner also contended that the evidence from the accountant that he had taken the NOR to the meeting could not be privileged because privilege was confined to confidential communications between a solicitor and client for the purpose of giving or getting advice.

Decision

The High Court dealt with the issues in the following way:

The NOR had been served on the taxpayer in time, even though the method of service did not comply with section 14TAA. His Honour stated that if the Commissioner did not agree with a taxpayer's NOPA, he must notify the taxpayer (section 89G TAA). Notification may be given by any of the means specified in section 14 TAA, thebeing expressed in permissive terms. The prescriptive and formal nature of the disputes procedures did not compel departure from the normal meaning of the word "may". His Honour agreed with Baragwanath J's comments in Hieber v The Commissioner of Inland Revenue (2002) 20NZTC17,774, that section 14 TAA was facilitative, not mandatory. However, the Commissioner would be well advised to comply strictly with section 14 TAA when it comes to service as it is important that taxpayers know to whom notices are being sent. The Commissioner must prove that the taxpayer who issued the NOPA had received the NOR, unless he can rely on the deeming provisions of section 14 TAA relating to postal service or service on an agent.

His Honour accepted that, in the present case, the accountant was the taxpayer's agent as he had held himself out as such by serving the NOPA. However, the question posed by section 14 TAA in relation to an agent was whether the person concerned was authorised to act on behalf of the taxpayer. That was a question of fact. A taxpayer may appoint a number of agents in a tax dispute but authorise only one of them to accept service of documents. Since the taxpayer in the present case had, in his NOPA, designated another firm as his agent for service, the Commissioner could invoke the agency provisions of section 14 TAA only by serving the NOR on the designated firm. Had the NOPA been silent about service, the inference that the accountant was the taxpayer's agent for service would have been irresistible.

However, that was not the end of the matter. His Honour held that the evidence from the accountant was admissible, and sufficient, to prove that the NOR had been served in time. The NOR itself was not privileged. It was the Commissioner's document, willingly disclosed. The Commissioner had not sought to prove the contents of the NOR by calling the accountant; rather, he had sought to establish only that it had been given to the taxpayer at the meeting. His Honour stated that privilege does not extend to communications between a client and a third party, unless the third party is an agent of the client or the solicitor and the communication passes through the agent as an intermediary: Three Rivers District Council v The Governor and Company of the Bank of England (No6) [2005] 1 AC 610, 654, para 50 (HC). A communication from an employee or an agent acting otherwise than as an intermediary for the purpose of getting legal advice will not attract legal advice privilege: Three Rivers District Council v The Governor and Company of the Bank of England (No 5) [2003] QB 1556, 1574 (CA).

In the present case, the tabling or delivery of the NOR was a communication between the accountant and the taxpayer. The delivery provided a convenient occasion for legal advice; getting legal advice was however not the purpose of the delivery. The accountant was not engaged as an intermediary to get legal advice. Accordingly, the delivery of the NOR did not attract legal advice privilege. His Honour also stated that the NOR was not covered by litigation privilege, which applied to confidential communications between solicitor, client and third party for the dominant purpose of enabling the solicitor to advise or act in litigation. So far as the conduct of anticipated litigation was concerned, the delivery of the NOR in the present case was merely a collateral fact: Brown v Foster (1987) 1 H&N 736; Dwyer v Collins (1852) 7 Ex 639; Brown v Bennett (No 2) [2002] 1WLR713, 769.

On the issue relating to the evidence of the tax inspector, His Honour stated that he was not persuaded that the TRA was wrong. The TRA"s criticism may have been focused more on the carelessness of the tax inspector, which the TRA found inexcusable.