In Re Section 201 of the Income Tax Act 1997, Application by Smith [1999] CKHC 1; HC Civil Case 003 of 1998 (26 April 1999)

HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA

(Civil Division)
O.A. 3/98

IN THE MATTER of the Declaratory Judgments Act 1994

AND

IN THE MATTER of the Income Tax Act 1997

AN APPLICATION to determine the true meaning and interpretation of Section 201 of the Income Tax Act 1997

AN APPLICATION made by EWAN FRANCIS SMITH of Rarotonga Company Director.
Applicant

Counsel: T. P. Arnold for Applicant
M. C. Mitchell for Collector of Inland Revenue

Judgment: 26 April 1999

JUDGMENT OF QUILLIAM C.J.

This is an application under the Declaratory Judgments Act 1994 for declaratory orders as to the powers of the Collector of Inland Revenue in the case of persons about to leave the Cook Islands.

Under recent legislation the proper title of the person charged with the responsibility for the collection of income tax in the Cook Islands is the Treasurer of the Revenue Management Division of the Ministry of Finance and Economic Management. That person's previous designation was Collector of Inland Revenue and for convenience I refer to him in this judgment as "the Collector".

The proceedings arise out of the action of the Collector in January 1998 in notifying the Applicant that he would not be issued with a clearance certificate enabling him to leave the country unless his outstanding tax had been paid in full by 31 March 1998. The present application is not intended to resolve any question which has arisen or exists in respect of the Applicant himself, but is designed to obtain clarification of the powers of the Collector in the issuing or withholding of a tax clearance for persons intending to leave the country temporarily. I do not, therefore, make further reference to the Applicant's personal situation, but acknowledge that the affidavit he has filed establishes him as a person entitled to make the application.

It is necessary to set out the relevant parts of the application. It seeks "...declaratory orders determining questions as to the construction of Section 201 of the Income Tax Act 1997, and specifically:

"1. Does section 201, on its true construction, allow the Collector:

a. To "arbitrarily detain" (as that expression is used in Article 65 of the Constitution) a person in the Cook Islands?

b. to detain a person in the Cook Islands upon grounds which are arbitrary or unreasonable?

2. Is section 201, on its true construction, intended to have any application to a person whose absence from the Cook Islands is of a temporary nature only? If not is the onus upon that person to demonstrate that he or she is departing temporarily or on the Collector to demonstrate otherwise?

3. If section 201 does have application to a person whose absence from the Cook Islands is of a temporary nature only, does the provision, on its true construction, give the Collector a power to require the giving of security for the return of that person before such person leaves the Cook Islands?

4. Is the Collector entitled to reject as adequate security for the return of a person to the Cook Islands, such security as would be considered adequate by the High Court, if it were given in civil or criminal proceedings in the High Court for the purposes of securing the return of a person to the Cook Islands?

5. Is the Collector entitled to reject security for the return of a person to the Cook Islands, regardless of its adequacy, and instead refuse to allow a person to leave the Cook Islands until tax is paid in full?

6. If the answer to question 5 is in the affirmative, is the Collector, in exercising the discretion vested in him under section 201 entitled to impose a requirement "across the board" that all taxpayers (regardless of means or other relevant circumstances) must settle tax arrears within a period of, say, six months?

7. Is the Collector, in imposing any policy requirement as to the settlement of arrears entitled to give preferential treatment to members of parliament, cabinet ministers, or other members of legislative or executive Government (in each case whether past or present)?

8. If the answer to question 5 is in the affirmative, is the Collector, in exercising the discretion vested in him under section 205 (sic) entitled to disregard any or all of the following:

(a) the duration of that person's absence from the Cook Islands?

(b) the purpose for which that person travels overseas?

(c) the absence of any probable (or) actual cause on his part for believing that the person leaves the Cook Island with intent to evade payment of tax owing?

(d) the situation in the Cook Islands of assets belonging to that person of a sort and nature to be taken in execution under the recovery provisions of the Income Tax Act 1996?

(e) the absence of any reasonable grounds on his part for believing that the absence of that person from the Cook Islands will delay or hinder the exercise by him of the enforcement provisions of the Income Tax Act 1996 against that person?

9. If the answer to question 5 is in the affirmative, may the Collector, in the exercise of his discretion, require that a person agree - as a precondition to the issue of a certificate - to make payments in a manner or at a rate more onerous than the High Court could itself require if the amount outstanding were a judgment debt and the person concerned were brought before the Court under the provisions of Cook Islands law providing for examination of a judgment debtor?"

The relevant parts of s. 201 of the Income Tax Act 1997 provide:

"201. Payment of income tax by persons leaving the Cook Islands - (1) Upon the application of any person about to leave the Cook Islands, if the Collector is satisfied -

(a) that the person is not liable to pay any income tax; or

(b) that all income tax payable by the person has been paid; or

(c) that satisfactory arrangements have been or will be made for the payment of all income tax that is or may become payable by the person,

the Collector shall issue a certificate to the effect that the person is not under any liability for income tax requiring to be discharged before the person leaves the Cook Islands.

(2) Every certificate under this section shall remain in force for such period or until such date as may be specified in that behalf in the certificate.

(3) No ticket or other authority to travel from the Cook Islands by any ship or aircraft shall be issued to or in respect of any person by the owner or charterer, or by any representative or employee of the owner or charterer of the ship or aircraft, nor shall any person be permitted to sign on or be engaged as a member of the crew of any ship or aircraft leaving the Cook Islands, unless and until a certificate issued under this section in respect of that person, and not expiring before the date of the departure of the ship or aircraft from the Cook Islands, is presented to the owner or charterer or to the representative or employee of the owner or charterer"...

Article 64 of the Constitution of the Cook Islands sets out provisions as to the "fundamental human rights and freedoms".

Article 65 of the Constitution, so far as applicable, provides:

"65. (1) Subject to subclause (2) of this Article and to subclause (2) of Article 64 hereof, every enactment shall be so construed and applied as not to abrogate, abridge, or infringe or to authorise the abrogation, abridgment, or infringement of any of the rights or freedoms recognised and declared by subclause (1) of Article 64 hereof, and in particular no enactment shall be construed or applied so as to -

(a) Authorise or effect the arbitrary detention, imprisonment, or exile of any person...

(2) Every enactment, and every provision thereof shall be deemed remedial, whether its immediate purpose is to direct the doing of anything that the enacting authority deems to be for the public good, or to prevent or punish the doing of anything it deems contrary to the public good, and accordingly shall receive such fair large, and liberal construction and interpretation as will best ensure the attainment [of the object] of the enactment or provision thereof according to its true intent, meaning and spirit."

Article 64 does not include any reference to the right of a person to leave the country, but on behalf of the Applicant reference was made to the International Covenant on Civil and Political Rights which, on 28 December 1978, New Zealand ratified on behalf of the Cook Islands. Article 12 of that Covenant provides:

"(i) Everyone lawfully within the territory of a State shall, within that territory have the right to liberty of movement and freedom to choose his residence,

(ii) Everyone shall be free to leave any country, including his own,

(iii) The above-mentioned rights shall not be subject to any restrictions except those which are provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognised in the present Covenant,

(iv) No one shall be arbitrarily deprived of the right to enter his own country."

That Covenant has not been enacted as part of the law of the Cook Islands and so has no legislative effect. There are several legislative provisions which make it an offence to leave the country - e.g. while a maintenance order is in force, or in the case of absconding debtors. If s. 201 is not ultra vires then it would provide a further exception to the Covenant in accordance with Article 12 (iii).

The real question for present purposes is the interpretation to be given to s. 201.

I now deal with the questions asked in the application.

1. Arbitrary detention.

This question can be shortly answered. There can be no suggestion that the words of s. 201 entitle the Collector to detain a person arbitrarily, or indeed to act arbitrarily in any other way. Section 201 authorises the Collector to withhold a tax certificate where he is "satisfied" that certain circumstances, as specified in the section, exist. It follows that the Collector must have exercised his judgment as to the existence or otherwise of certain basic facts.

It must be said at once that it is not contended on behalf of the Collector that there is any right of arbitrary detention or of any other arbitrary action conferred by s. 201. Whether or not in a particular case it can be said that the Collector has indeed acted arbitrarily will be a matter to be determined on the facts of that case and could be the subject of an application to the Court for one of the prerogative writs, but certainly there is no general right of arbitrary action or decision conferred by the section.

The answer to both parts of this question must be in the negative.

2. Temporary absence.

It is acknowledged on behalf of the Applicant that the wording of s. 201 (1) must encompass persons leaving the Cook Islands either permanently or temporarily. It is contended, however, that an intention to leave only temporarily will be of relevance in determining whether the Collector was in a particular case justified in concluding that he was not satisfied that "satisfactory arrangements have been or will be made for the payment of all income tax..."

I think it is clear that this question must be answered in the affirmative.

3. Security for return.

Section 201 does not contain any explicit reference to the giving of security. It requires only that the Collector should be satisfied that arrangements have been or will be made for the payment of income tax. Plainly, there may in particular cases be circumstances which will prompt the Collector to remain unsatisfied until some security is given, but there is no suggestion that this will be a normal requirement.

It must also be observed that the Collector is required to be satisfied that arrangements have been or will be made for the payment of tax, and not that the person will return. If there is doubt as to the intention to return then presumably that will affect the nature of the arrangement which will satisfy the Collector.

Having regard to the form in which this question is asked the answer must be in the negative.

4. Adequacy of security.

The adequacy of any security or other arrangement which the Collector regards as satisfying him is not a matter which can be answered in the abstract. It is, of course, always open to a person who has been refused a certificate to apply to the High Court for one of the prerogative writs, but the adequacy of any arrangement which should be acceptable to the Collector cannot be determined in advance by reference to what the High Court may in a particular case decide.

No answer is required to this question.

5. Rejection of security.

It is self-evident that the Collector may not reject security which is offered regardless of its adequacy. Whether this has occurred in any case would be a matter for the Court to decide in appropriate proceedings.

The answer to this question must be in the negative.

6. In view of the negative answer to question 5 this question does not require an answer.

7. Preferential treatment.

It is clear that s. 201 does not in any way give the Collector the right, as a matter of policy, to give preferential treatment to members of parliament, cabinet ministers or other members of the legislative or executive Government, past or present.

Subsection (7) gives to the Minister (and not to the Collector) the power by public notice to declare that "a person or class of persons is not under a liability or income tax requiring to be discharged before the person or class of persons leaves the Cook Islands." This, however, is not a power exercisable by the Collector and cannot affect his issuing or withholding certificate. If a person or class of persons has been declared not to be liable for income tax then it is difficult to believe that the Collector could decide not to issue a certificate.

The answer to this question must be in the negative.

8. Matters properly taken into account.

In view of the negative answer to question 5 this question does not require an answer. However, it should be observed that the Collector will not be entitled to disregard any relevant matter including any of those listed in paras. (a) to (e) of question 8.

9. Acceleration of tax payment.

As the answer to question 5 was in the negative this question does not require an answer. It must be said, however, that the requirement of the Collector as to the time or rate of payment of tax by a person proposing to leave the country will in all cases be subject to review by the High Court if it is considered that the Collector has acted unfairly or without jurisdiction.

This question could not be answered in the abstract.

I think I should add a brief further comment.

Reference has been made in submissions to Hansard reports of statements made at the time of the passing of the Income Tax Act 1972. Section 216 of that Act is in the same terms as s. 201 of the 1997 Act. Comments were made in Parliament as to the purpose of the section. The interpretation of the statute must, however, depend, if it can, on the words of the statute itself. As there does not appear to be any ambiguity in the words of s. 201, the Hansard reports are not available as an aid to construction.

SUMMARY.

I answer the questions in the application as follows:

1. No.

2. Yes.

3. No.

4. No answer required.

5. No.

6. No answer required.

7. No.

8. No answer required.

9. No answer required.

The question of costs will be reserved.

QUILLIAM C.J.