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Technical tax area Ngā tūmomo whakataunga me ngā aratohu

Collateral attack on Supreme Court judgments

Decision date: 17 June 2013

Case: Accent Management Ltd v The Attorney-General of New Zealand and the Commissioner of Inland Revenue

Act(s): Subparts EG and EH Income Tax Act 1994, sections 138B and 138P Tax Administration Act, High Court Rules rule 5.49

Keywords: Indemnity costs, collateral attack, jurisdiction of the High Court, Trinity, tax avoidance

Summary

This was an application by the Commissioner to dismiss the claim on the grounds that the High Court did not have jurisdiction to hear the taxpayer's claim. The Court found that the taxpayer's application was a collateral attack on two Supreme Court judgments.

Impact of decision

Another success and an indemnity costs award for the Commissioner in the Trinity litigation.

Facts

This claim relates to the Trinity tax avoidance litigation. The taxpayer's deductions had been claimed under subpart EG of the Income Tax Act 1994 ("ITA") for the 1997 and 1998 tax years. These deductions were disallowed by the Commissioner on the basis of section BG 1 and penalties were imposed. The Commissioner's decision was upheld by the Supreme Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 ("Ben Nevis"). During the course of submissions in the Supreme Court, counsel for the plaintiff submitted that, in fact, the taxpayer's deductions and spreading issues should have been claimed under subpart EH of the ITA, instead of subpart EG. The Supreme Court declined to hear this new argument.

Some investors in the Trinity scheme have continued to litigate various issues and this present claim was to set aside the High Court judgment delivered by Venning J in December 2004, which has been upheld twice by the Supreme Court. The plaintiffs also sought declarations that the High Court exceeded the jurisdiction and powers conferred on it by sections 138B and 138P of the Tax Administration Act 1994 ("TAA").

The request to have Venning J's judgment in the High Court set aside was primarily based on the plaintiff's allegation that the High Court, as a "deemed hearing authority", purportedly exercised powers under section 138P of the TAA but made orders which were of no effect.

The Commissioner applied to dismiss the claim on the grounds that the High Court had no jurisdiction to entertain the claim by the plaintiff.

Decision

Priestley J concluded that rule 5.49 of the High Court Rules applied and that it couldn't determine Accent Management's current proceeding, because the High Court was functus officio and that it lacked jurisdiction to determine whether the Supreme Court's legal conclusions in Ben Nevis were wrong.

The Judge considered that the proceeding represented a collateral attack, an "impermissible attack," on not one but two judgments of the Supreme Court.

Priestley J found the proceeding as being untenable from the outset, the plaintiff has twice exhausted its appellate pathways and its persistence was untenable.

The Court dismissed the plaintiff's proceeding and awarded reasonable indemnity costs to the Commissioner.

 

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