Claim struck out for abuse of process

Summary

The High Court upheld the Commissioner's strike out application on the basis that the plaintiff's pleadings were an abuse of process.

Impact of decision

The decision describes the circumstances in which the Courts will strike out a claim for abuse of process. The decision also confirms that there may only be an inquiry into the validity of assessments in the limited circumstances of where what purports to be an assessment is not an assessment and in cases involving conscious maladministration.

Facts

The plaintiff (in a representative action) sought to judicially review the validity of the Commissioner's 1997 and 1998 assessments which had already been confirmed as correct by the High Court, the Court of Appeal and the Supreme Court (see Tax Information Bulletin Vol 21, No 1).

The plaintiff contended that the Commissioner had confined himself to disallowing the two species of deduction claimed by the plaintiff and did not (as the plaintiff contends he was obliged to do) then allow a lesser deduction on a distinct statutory basis. The plaintiff further contended that had the Commissioner done so, he would not have concluded that the Trinity scheme was a tax avoidance arrangement.

The Commissioner sought to strike out the plaintiff's application as untenable, vexatious and an abuse of process.

Decision

His Honour, Justice Keane upheld the Commissioner's strike out application on the basis that the plaintiff's pleadings were an abuse of process for the following reasons:

1. The plaintiff's case relied on a proposition that the plaintiff could easily have advanced from the outset.
2. The plaintiff's proposition was antithetical to the deduction it actually sought and defended until the hearing in the Supreme Court.
3. The plaintiff only advances the proposition now because of the adverse decisions it has suffered.
4. The plaintiff's case is a collateral attack not just on the two assessments, deemed by statute to be correct and valid, but on the three Court decisions vindicating their correctness.

His Honour held that the plaintiff's challenge to the validity of the Commissioner's 1997 and 1998 assessments did not begin to found the conclusion that the Commissioner either made no assessment or was culpable of conscious maladministration. It was these two exceptional categories of case alone which his Honour held could reach beyond the statutory presumptions in sections 109 and 114 of the Tax Administration Act 1994. He confirmed that the statutory objection procedure is not just primary it is curative by the exercise of the power of reassessment.

The plaintiff contended that its case lay within the two exceptional categories (acknowledged in Westpac Banking Corporation v Commissioner of Inland Revenue [2009] NZCA 24) because the Commissioner was fixed with the knowledge of the pre-emptive effect of section EH 8 of the Income Tax Act 1994 and his determinations. However, Justice Keane held that it could not begin to be said that the Commissioner made his assessments dishonestly or defectively.