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Commissioner of Inland Revenue v Thomas [2001] FJLawRp 79; [2001] 1 FLR 304 (11 September 2001)

COMMISSIONER OF INLAND REVENUE v DAVID THOMAS ROBINSON; COMMISSIONER OF INLAND REVENUE v LATU ENGINEERING WORKS LTD.

High Court Civil Jurisdiction

Setting aside judgment – judgments obtained in default of defence – whether judgments irregular - Income tax assessment – amount owing – onus on Defendants to verify of P32-1 forms – conditions on which judgment can be set aside – Income Tax Act ss62(8) & 76; High Court Rules O.13 r.10, O.19 r.9

The Defendants failed to object to the CIR assessments in the two matters within 60 days. The assessments became valid and binding. The Defendants claimed that no notice was served on them prior to default judgment being entered, thus the judgments were irregular. The Court found no merit in that claim. The judgments were regular. The Defendants say some P32-1 forms still require verification, although it was not clear to the court whether the forms relate to the period for which judgment was entered.

Held – The onus is cast upon a taxpayer once tax is assessed. It is for the taxpayer to demonstrate that the assessments are wrong, why they are wrong, and by how much they are wrong. The assessments must stand unless and until the taxpayer satisfies the Court they are wrong. It must also establish what the correct amount should be. The onus is on the Defendants to verify P32-1 forms. The Defendants themselves are to blame for judgment being entered by not complying with the s62 Income Tax Act and responding to the Plaintiff's demands as required.

Default Judgments set aside on conditions.

Cases referred to in Decision
Buckley & Young v CIR (1978) 3 NZTC 61
C of T v McCoad [1952] NZGazLawRp 27; [1952] NZLR 263
Davies v Pagett (1986) 107 CLR 26
Evans v Bartlam [1937] AC 480
Haythornthwaite Ltd v Kelly (1927) 11 T.C. 657
Normal v Golder (1944) 26 T.C. 2L93
Trautwein v FC of T (No 2)(1936) ALR 425
Williams Property Development v CIR [1980] 1 NZLR 280

Amani V. Bale for the Plaintiff
Harry Robinson for the Defendant

Pathik, J

There are two motions before this Court to set aside judgments in default of defence. In Civil Action No. 59 of 1999 between the Plaintiff (Commissioner of Inland Revenue) and David Thomas Robinson default judgment was entered on 16 February 2000 for the sum of $26,512.23 with $70.00 costs making a total sum of $26,582.23; and application is made to set aside the said judgment; and in Civil Action No. 74 of 1999 by motion dated 26 April 2001 there is a similar application. Judgment in default of defence was entered on 16 March 2000 for the sum of $41,878.15 and $70.00 costs making a total sum of $41,948.15. In both the motions an affidavit each, which are almost identical have been filed. It was agreed by both counsel that the Court hear the applications together as the Defendants are 'related' and the same issue is involved in both.

In 59/99 the Defendant himself swore an affidavit in support. The gist of what he said is the same as in the affidavit in 74/99.

In 74/99 the Defendant/Applicant through its director Edward Patrick Robinson in his affidavit states that: (a) there was an understanding between him and his counsel that the former continue discussion on the claim with the Defendant; he said that he was assured by his counsel that no judgment would be entered by the Plaintiff without notice to the Defendant. Despite that, judgment was entered on 16 February 2000 in 59/99 and on 16 March 2000 in 74/99; (b) the judgments are irregular and (c) the Defendant has a meritorious defence.

Plaintiff's affidavit in Reply

(a) As for 59/99, there were no objections to the assessment within 60 days as required under s62 of the Income Tax Act Cap.201. Hence assessments are now valid and binding. The Defendant was served with demand notices; he asked for time to pay but did not pay. Even after judgment he did not pay.

The Plaintiff is asking that the Court must refuse to set aside default judgment for the following reasons:

(a) the long delay in making this application;
(b) the Defendant has not shown that he has a Defence in any event;
(c) the judgment was entered after the Defendant failed to file a Defence;
(d) The Defendant did not avail himself of the opportunity to object to the assessments as provided for by the Income Tax Act (Cap. 201);
(e) the assessments are now valid and binding;
(f) the Defendant had been given several opportunities by the Plaintiff to settle his debt but did not do so;
(g) that this application is an abuse of the court process

(b) As for 74/99, the Defendant is indebted to the Plaintiff in the sum of $41,949.15 being Income Tax and Penalties for the years 1989 to 1993. The situation is similar to one in 59/99. There was a demand; there was the assessment and there was no objection to the assessment within the required period. The Defendant had even asked for time to pay but did not.

For the reasons stated in 59/99 the Plaintiff is asking for the dismissal of the motions with costs.

Determination of the issue

On the issue before me I have very helpful written submissions from both Counsel.

Mr. Robinson for the Defendants has outlined to Court the background to the Defendants' business. In short they are 'related' or as he says 'a family engineering concern'. He also stated the circumstances which led to judgments being entered in the two actions. For the reasons he gave he said that the judgments ought to be set aside and that the Defendants be allowed to file Statement of Defence.

The Plaintiff has vigorously opposed the application stating in his affidavits and submission the reasons for doing so.

On Mr. Robinson's submission that the judgments were irregular I find that there is no merit on this ground.

Mr. Robinson is asking the Court to exercise its discretion in setting aside the judgments. He said that the Plaintiff's letter after judgment has reduced the claims by $17,636.12 after verification with p32-1. He says that there are some slips which are yet to be verified. Mr. Robinson's submissions in this regard on pages 3 to 4 have some merit. But whether this verification affects the period for which judgment was obtained in 74/99 is not clear.

The two actions have not been tried on merits. The circumstances in which judgments have been obtained have already been stated hereabove. In view of the fact that further verification in 74/99 is necessary, in justice, the Defendants ought to be allowed to defend. The Defendants are themselves to be blamed for the situation they have put themselves in by not complying with the requirements of the law and responding to the Plaintiff's demands as and when required to do so.

In Davies v Pagett (1986) 107 CLR 26 at 232 the Full Court of the Federal Court of Australia stated:

"The fundamental duty of the court is to do justice between the parties. It is in turn fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter."

I agree entirely with Mr. Bale in his written submission on his exposition of the law on the subject of onus cast upon the Defendant once the tax is assessed. It is for the taxpayer to demonstrate that the assessments are wrong, why they are wrong, and by how much they are wrong. I also agree that the assessments must stand unless and until the taxpayer satisfies the Court they are wrong.

The law as to what the Defendants are required to do once assessments are issued have been well put by Mr. Bale as follows and this should be taken note of by the Defendants:

(a) The degree of proof required is on the balance of probabilities. [Case Q32 (1993) 15 NZTC 5, 150 Case M50 (1990) 12 NZTC 2, 300]

(b) The taxpayer is required to demonstrate that the assessments are wrong, why they are wrong and by how much they are wrong. However absolute precision is not required. [Buckley & Young v CIR (1978) 3 NZTC 61, 271 C of T v McCoad [1952] NZGazLawRp 27; [1952] NZLR 263]

(c) The assessments must stand unless and until the taxpayer satisfies the Court they are wrong. [Normal v Golder (1944) 26 TC 293, 297, Haythornthwaite Ltd v Kelly (1927) 11 TC 657, 667].

(d) It is not enough for the taxpayer to establish that there is an error and thereby create a "blank" in the assessments. It must also establish what the correct amount should be. In this regard it is a relevant consideration that the facts necessary to establish the correct amount are peculiarly within the knowledge of the taxpayer [See Trautwein v FC of T (No 2)(1936) ALR 425]

(e) Where the state of the evidence is not such as to enable the Court to decide one way or the other, a finding in favour of the taxpayer is ruled out. [Williams Property Development v CIR [1980] 1 NZLR 280]

(f) As no valid objection to the assessments was made, the assessments stand and are valid and binding upon the Defendant notwithstanding any defect, error, or omission that may be contained in them. [Section 62(8)].

(g) In the alternative, even if the Defendant had objected the right to receive and the obligation to pay the tax assessed is not suspended. The Plaintiff is still entitled to judgment.

(h) The taxes assessed are recoverable as a debt due to the State and the validity of the assessments cannot now be challenged by the Defendant in this Court. [Section 62 & 76]

On the affidavit evidence before me, I find there is some defence particularly in relation to verifying some P32-1; but the onus is on the Defendants to attend to these matters, so they should wake up from their slumber and do something about the matter. They should not expect the Commissioner of Inland Revenue to be chasing after the P32-1 for the ball is in the Defendants' court.

A judgment in default of notice of intention to defend, or defend may be set aside or varied unconditionally or upon terms, vide Order 13 r 10 which provides:

"Without prejudice to rule 8(3) and (4), the Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order."

And Order 19 r 9 states:

"The Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order."

Lord Atkin in Evans v Bartlam [1937] AC (H.L) at 480 stated:

"The principle obviously is that unless and until the Court has pronounced judgment upon merits or by consent, it is to have the power to revoke the expression of its coercive power where that has been obtained by a failure to follow any of the rules of procedure."

To conclude, upon considering the submissions of counsel and taking into account the principles governing the setting aside of judgment, it cannot be said that the Defendants do not owe the amounts claimed in the two actions except that there may be some doubt as to whether further verifications of p32-1 will reduce the claims and it will be up to the Defendants to satisfy the Plaintiff in this regard for the onus is on them to do so.

For these reasons I set aside the two judgments on condition that the Defendants deposit into Court the sum of $26,582.23 in respect of Civil Action No. 59 of 1999 and the sum of $41,948.15 in respect of civil action No. 74 of 1999 within 28 days; I award costs in the sum of $500.00. The Defendants are let in to defend with Statement of Defence to be filed within 28 days. Failure to deposit money into Court and to file Statement of Defence will mean that the judgments herein will stand.

Application granted.

Marie Chan