Herbert v Fiji Islands Revenue & Customs Authority [2010] FJHC 265; Misc Action 05.2010L (26 July 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Misc Action No: 5 of 2010L

BETWEEN:

ANTHONY JAMES HERBERT and MALCOLM ANDREW HERBERT
Applicants

AND:

FIJI ISLANDS REVENUE & CUSTOMS AUTHORITY
Respondent

FINAL JUDGMENT

Judgment of: Inoke J.

Counsel Appearing: Mr F Koya for the Plaintiff
Ms S Takilai for the Defendant

Solicitors: Koyas for the Plaintiff
In-house solicitors for the Defendant

Date of Hearing: 19 July 2010
Date of Judgment: 26 July 2010

INTRODUCTION

[1] This is the second of two applications filed by Koyas to set aside two Departure Prohibition Orders ("DPOs") issued by Fiji Islands Revenue & Customs Authority ("FIRCA") against the Applicants. Two lots of DPOs were issued against them on 21 June 2010 and again on 29 June 2010 on the basis that they are the directors of a construction company in Fiji, Herbert Construction (Fiji) Limited , which is said to have unpaid taxes.

[2] The DPOs were issued pursuant to s 31 of the Tax Administration Decree [No. 50 of 2009]. The section provides:

Departure Prohibition Order

31. (1) Where:

(a) a person is subject to a tax liability; and

(b) the CEO believes on reasonable grounds that it is desirable to do so for the purposes of ensuring that the person does not depart from Fiji for a foreign country without—

(i) wholly discharging the tax liability; or

(ii) making arrangement satisfactory to the CEO for the tax liability to be wholly discharged;

The CEO may, by order in accordance with the prescribed form, prohibit the taxpayer departing from Fiji for a foreign country.

(2) The CEO must state the following on the Departure Prohibition Order:

(a) the name and address of the taxpayer;

(b) the amount of tax that is or will become payable.

(3) A departure prohibition order has effect throughout Fiji, including aboard any vessel or aircraft within the territory of Fiji.

(4) A copy of a departure prohibition order issued in respect of a taxpayer must, as soon as practicable, be served on the taxpayer, and upon the Commissioner of Police and the Director of Immigration.

(5) If a departure prohibition order is issued in respect of a taxpayer, the Commissioner of Police and the Director of Immigration must exercise the powers that they lawfully possess, or cause an officer under their direction to exercise such powers, so far as is necessary to prevent the taxpayer from departing Fiji, including the removal and retention of the taxpayer's passport, identity card, visa, or other travel document authorising the taxpayer to leave Fiji.

(6) A taxpayer the subject of a departure prohibition order must be refused customs or immigration clearance.

(7) A departure prohibition order remains in force until revoked by the CEO or upon the expiration of three years from the date of the Order being issued, whichever is the earlier.

(8) The CEO must revoke a departure prohibition order if —

(a) the taxpayer makes payment in full of the tax payable or that will become payable by the taxpayer; or

(b) the taxpayer makes an arrangement satisfactory to the CEO for payment of the tax that is or will become payable by the taxpayer.

(9) As soon as practicable after making a decision to revoke a departure prohibition order, the CEO must serve notice of revocation on the taxpayer and on any person on whom a copy of the departure prohibition order was served.

(10) No proceedings, criminal or civil, may be instituted or maintained against the State, the CEO, a tax officer authorised to act under this section, or a Customs, Immigration, Police, or other officer for anything lawfully done under this section.

CASE HISTORY

[3] The applications were filed by way of originating motion in expedited form ex-parte on 5 July 2010 but I directed them to be issued inter-partes because I took the view that FIRCA should be heard for the same reasons that I gave in the other action, White v FIRCA Misc Action 4 of 2010L, namely, that the CEO might have very good reasons for issuing the DPOs, and, secondly, this was a different case altogether from Clowes v Fiji Islands Revenue and Customs Authority [2009] FJHC 226; HBM029.2009L (14 October 2009) in which I discharged a DPO for two reasons (1) that it was clearly defective and invalid, and (2) the applicant, having a permanent base and substantial business in Fiji and being involved in projects with the local community, was not a flight risk.

[4] I have set out the short history of these applications in Ms White's case which I repeat here for the sake of completeness and convenience. When both applications were first called on 7 July I gave directions for the filing of further affidavits and set them down for hearing on 12 July 2010 because of the urgency of having them heard and disposed of. I heard submissions from counsel on 12 July. In the course of argument, it appeared from on going negotiations through their counsel that the DPOs might be suspended if sufficient undertakings to the satisfaction of the CEO were given. I therefore, at their request, made interim orders to the effect that the DPOs could be lifted if the applicants gave undertakings satisfactory to the CEO. I then gave directions for filing of submissions and I was to give my judgment on notice if I did not require further oral submissions and the matter did not settle.

[5] Unfortunately, the undertakings required by the CEO effectively meant that both applicants would have to pay up the alleged tax liabilities so their counsel filed applications on 16 July 2010 and brought the matter back before me on the same day. The orders sought in those applications were effectively for me to dictate to the CEO what was acceptable as undertakings. I did not think that it was within my power to grant such relief. The CEO was not budging from his position, understandably, so it seemed to me that there was no alternative but for me to give a ruling on the applications so I set them down for further hearing on 19 July 2010. This is my judgment after those hearings.

HEARING OF APPLICATION ON 19 JULY 2010

[6] In Anthony Herbert's affidavit in support he says he has been living in Fiji for about 5 years now. He and Malcolm are looking after the operations of the Fiji company currently based at Momi in Nadi. The company has fixed assets (basic equipment and structures) and intangible assets such as business and goodwill here in Fiji. They also travel in and out of Fiji because they look after the operations of Herbert Construction Limited in New Zealand as well. Apart from their considerable interests and financial commitments in Fiji, he says they also have very strong social and community ties here. In the 5 years that they have been in Fiji, they have acquired properties and taken interest in various organisations and contributed to charities.

[7] On 21 June 2010 they were both issued with DPOs as directors of the Fiji company for taxes allegedly owing by the company. The tax assessed is currently the subject of re-assessment. Then again on 29 June 2010 they were both issued with further DPOs for further alleged unpaid taxes by the Company. The second lot of taxes is for a substantial amount. They say they have suffered a lot of anguish and distress from the issue of the DPOs because they are unable to travel out of Fiji for business and to visit their families in New Zealand. They have every intention of returning to Fiji to continue the management and operation of the Fiji company.

[8] The DPOs were in these identical terms:

DEPARTURE PROHIBITION ORDER

[Date]

To: [Name and Address]

...

In accordance with the provisions of section 31 of the Tax Administration Decree (Decree No. 50 of 2009) I hereby issue this Departure Prohibition Order to prevent you from departing the Fiji Islands.

This order has effect throughout Fiji Islands, including aboard ships and vessels within the Fiji Islands territorial waters and aircraft within the Fiji Islands airspace.

This order may be revoked if you, as the representative of Herbert Construction Limited

(a) pay the amount of unpaid tax assessed of [amount]; or

(b) provide or arrange for security to be given for payment of the above sum.

The order is effective for 3 years from the date of issue unless extended or revoked.

[9] In reply, the Team Leader of FIRCA's Debt Management Unit in Lautoka said that both applicants live in Fiji on work visas which would expire in 2011 and 2012, respectively. She says the company has only two fixed assets which are two freehold residential homes which are currently mortgaged to a bank here in Fiji. The first DPOs of 21 June 2010 have now been revoked by the Commissioner by his letter of 7 July 2010. No explanations were given as to why these DPOs were revoked. The 29 June 2010 DPOs remain unrevoked. She says the Commissioner had reasonable grounds to issue the DPOs but she did not specify in her affidavit what they were.

[10] The Applicants in response say that the value of the company's assets is more than $2m and in addition to the two homes they include a workshop and a joinery facility. They deny that the tax assessments were correct and intend to lodge an appeal.
[11] Since the DPOs of 21 June 2010 have now been revoked I allowed the Applicants to amend their Motion to refer to the 29 June 2010 DPOs instead.

THE LAW

[12] As I said in Ms White's case, there is no doubt that the CEO must act lawfully. That means that (1) there must be a tax liability, and (2) there must be evidence to suggest that the tax payer was likely to leave without paying the tax or without providing security for payment. As counsel for the Applicants submitted, this is not a provision for tax collection i.e. to force tax payers to pay taxes, but rather a provision to stop persons absconding without paying the tax that is due or providing adequate security for its payment.

[13] In this case it is not disputed that the company has a tax liability. How much is yet to be determined. However, whether the directors are liable is in issue. The other issue is whether the CEO had reasonable grounds that the Applicants would leave and not return without first paying the assessed tax or provide security for its payment, satisfactory to the CEO.

[14] In Clowes v Fiji Islands Revenue and Customs Authority [2009] FJHC 226; HBM029.2009L (14 October 2009), I said this of similar provisions in the previous tax legislation and the Customs Act:

[12] It is a very serious matter indeed that a person is stopped from moving freely within or out of Fiji. The Act has given the Comptroller wide powers under s 143C. But those powers cannot be abused. He may issue an order if he is satisfied that the person who owes the duty may leave without paying it or may leave without securing it. In other words, the person must owe duty and secondly he is a "flight risk". If any one of these two conditions are not satisfied then the Comptroller's power to issue the Order does not arise.

[13] The Order was issued against Mr Clowes as "the person having controlling interest in Sunsail Pty Limited". It is implicit that the outstanding duty is owed by the company rather than Mr Clowes personally. The Order therefore does not comply with s 143C of the Customs Act 1986 pursuant to which it was issued and is therefore defective and invalid.

[14] Secondly, part of the alleged debt includes VAT which Mr Clowes says he may be entitled to a refund.

[15] Thirdly, he must be satisfied that Mr Clowes is a "flight risk". Section 115 of the Act provides that an officer or other person acting under his direction shall not be liable to any legal proceedings for any action taken by him in good faith in accordance with any provision of this Act. The corollary to that is that the officer must no act in bad faith. Considering Mr Clowes' background, I think the Comptroller has not only acted in bad faith but has acted arbitrarily.

...

[17] Similarly, the Commissioner has a discretion which he must exercise reasonably and in good faith.

[15] In the unreported decision of Manoj Khera v Fiji Islands Revenue & Customs Authority [2006] FJHC; HBC 162 of 2006 (6 July 2006), Singh J had this to say about a DPO issued under the previous tax legislation and whether such a restraint is reasonable and justifiable in a free and democratic society:

A DPO may therefore be seen is akin to a statutory writ ne exeat civitate. The Commissioner can impose it without having to go to court. Obtaining a writ ne exeat civitate is cumbersome and time consuming. At times before the writ is issued some taxpayers abscond. A DPO is a quick and ready method of ensuring that those who owe tax leave the country after paying tax. It provides for (an) effective remedy. As long as the Commissioner has good reason to believe that a taxpayer will abscond, he can issue a DPO. He cannot act arbitrarily or unreasonably. Factors like the amount of tax owed, whether a person has a citizenship elsewhere or a permanent residence or a business running in another country or whether other members of his family live in Fiji or elsewhere are all relevant factors.

...

For the restraint to be held valid it must be reasonable, it must be justifiable. There is a further qualification of reasonableness in a free and democratic society. A state must use no more restrictive means than are necessary to achieve the purpose of the limitation.

The Canadian case of R v Oakes 26 DLR (4th series) 200 discusses the concept of "reasonable and demonstrably justifiable" in a free and democratic society. It suggested to consider whether a law measured up to being "reasonable and demonstrably justifiable" one has to first look at the objectives which the law or statute sets out to achieve. It is said those concerns must be "pressing and substantial" and not "trivial or discordant" – p 27 Chief Justice Dickson. Secondly Oakes suggests that the means chosen to restrict the right must be reasonable and demonstrably justifiable under three elements of proportionality test, namely:

(a) Measures must be carefully designed and rationally connected to the objective.

(b) There should be minimal impairment of the right in question.

(c) There must be a sense of balance between the deleterious effect of the measures and objectives to be attained.

The New Zealand Court of Appeal in Moonen v Film & Literature Board of Review [2002] 2 NZLR 9 had occasion to discuss the approach to taken when considering reasonable limitation on freedom of expression which can be demonstrably justified in a democratic society. It suggested that the way to approach the issue is "first to identify the objective which the legislature was endeavouring to achieve by the provision in question. The importance and significance of that objective must then be assessed. The way in which the objective is statutorily achieved must be in reasonable proportion to the importance of the objective. A sledgehammer should not be used to crack a nut. The means used must also have a rational relationship with the objective, and in achieving the objective there must be as little interference as possible with the right or freedom affected. Furthermore, the limitation involved must be justifiable in the light of the objective.

[16] The Decree does not give any guidance as to what the CEO is to take into account in deciding whether to issue a DPO or not. Some guidance is given by Singh J in Manoj Khera above and I take further guidance from the Australian Tax Office (ATO) statement on the topic provided to me by Mr Koya which I find very helpful and respectively adopt:

INTRODUCTION

2. Part IVA of the Taxation Administration Act 1953 (TAA) gives the Commissioner the power to issue a departure prohibition order (DPO) which prohibits the debtor from leaving Australia, regardless of whether the debtor intends to return.

3. The Commissioner's ability to exercise this power depends upon the existence of certain preconditions. These are:

(i) the debtor must have a tax liability, and

(ii) the Commissioner must believe on reasonable grounds that it is desirable to issue an order for the purpose of ensuring that the debtor does not depart Australia without:

wholly discharging the tax liability, or

·making arrangements satisfactory to the Commissioner for the tax liability to be discharged.

4. The legislation applies to both Australian nationals and foreign nationals who are liable to pay Australian tax (except if a deportation order is in force). Where a deportation order is made after a DPO has issued, the Tax Office will consult with the Department of Immigration, Multicultural and Indigenous Affairs about revoking the DPO.

POLICY

5. By its very nature, a departure prohibition order imposes a significant restriction on the normal rights of a debtor in that it basically deprives debtors of their liberty to travel outside Australia. The Tax Office recognises the impact of this restriction on a debtor's freedom of movement.

6. The critical phase in the making of an order is the process of determining whether there are 'reasonable grounds' which make it desirable to ensure the debtor does not depart from Australia without discharging or making arrangements satisfactory to the Commissioner to discharge the tax liability.

7. In deciding whether to issue a DPO, the Tax Office will take a number of factors into account including whether:

(i) there is a tax liability and whether it can be recovered

(ii) known assets are sufficient to pay existing and future debts and whether those assets are in a readily-realisable form

(iii) recovery proceedings are in course

(iv) the debtor has recently disposed of assets to associated persons or entities (the transaction may be overturned in bankruptcy)

(v) there is any information to suggest concealment of assets (bank accounts in false names, use of an alias) or movement of funds (for example, AUSTRAC reports)

(vi) the debtor has entered into transactions that 'charged' assets in Australia and then moved the borrowed funds offshore

(vii) the debtor has assets overseas adequate to maintain a comfortable lifestyle

(viii) funds have been transferred overseas (and the purpose of the transfer)

(ix) the debtor has significant business interests in Australia

(x) the debtor is subject to investigation for criminal activities (and whether any charges have been laid)

(xi) there is a threat against the debtor's life as a result of criminal or other activities

(xii) there is Tax Office audit activity (or similar activity from other Government agencies)

(xiii) the debtor holds (or the debtor has applied for) an Australian or foreign passport/visa/work permit

(xiv) the debtor has given an indication of likely overseas travel, and there is no apparent need for travel, and

(xv) the debtor's family situation (this information may not be relevant by itself, but when combined with a number of other factors, it may influence a decision to issue an order).

CONSIDERATION OF THE APPLICATION

[17] I have not been pointed to any provision in the Decree which shifts the onus to the taxpayer of showing that a DPO is invalid. It might be impossible for the taxpayer to do that in many cases simply because the CEO does not fully explain why he issued the DPO. The onus of proof must lie with the CEO to show that he had reasonable grounds that the Applicants would abscond without paying or securing the tax liability.

[18] The first point that needs to be made is that it is the company that owes the tax. The company is still operating in Fiji and who is to say that it will not be able to pay its taxes. There is no evidence put forward by the CEO to say that the company is not able to do so. The CEO seems to base his decision simply and principally on his opinion that the tax he had already assessed is a substantial amount and that the company's assets are insufficient to meet the tax liability. The assessed tax may be reduced substantially on review and he has not said that his assessment is not likely to be so reduced and why.

[19] Further, it seems to me that the liability of a director for the tax of a private company is not automatic. Section 41B of the Income Tax Act [Cap 201] makes the director liable only when the company defaults; or where the director is involved in an arrangement to avoid the company paying tax, see for example, s 41A. The primary responsibility for the tax lies with the company. The CEO does not have a choice as to whom he makes liable for the tax in the absence of any of the prohibited arrangements and situations under the Act. No explanation has been given as to the basis on which the Applicants have been made liable for the taxes of the company other than that they are the "representatives" of the company. The CEO does not allege that the company has not paid or is unwilling or unable to pay its tax liability. I think the CEO has acted pre-maturely.

[20] Also, it seems to me that had the CEO, acting reasonably, taken into account the existence of some of the other factors listed above in the ATO statement, e.g., (ix), (xv) or the lack thereof, e.g. (iii) – (vi), (x) – (xii), (xiv), he would have come to the conclusion that a DPO was not justified, certainly at this stage. For this reason, I find that he had no reasonable grounds to issue the DPOs of 29 June 2010 so they are invalid and must be revoked.

[21] However, that is not the end of the matter because Mr Koya filed written submissions on a further point which I should consider out of fairness to him. He submitted that the CEO was subject to the principles of natural justice, that is to say, the CEO must give his clients the right to be heard and to accord them procedural fairness, before he issued the DPOs.

[22] I do not accept that submission. I think s 31 is an exception to the general rule. The whole purpose of the provision may be defeated if the taxpayer is alerted to what the CEO intends to do. Section 31(8) provides for the two things which the taxpayer may do and if he dose either of them the CEO must revoke the DPO. I need only refer to the High Court of Australia decision in Twist v Randwick Municipal Council [1976] HCA 58; (1976) 136 CLR 106 (17 November 1976) per Barwick CJ as supporting my view:

10. The common law rule that a statutory authority having power to affect the rights of a person is bound to hear him before exercising the power is both fundamental and universal: see Cooper v. Wandsworth Board of Works [1863] EngR 424; (1863) 14 CB (NS) 180 (143 ER 414) and R. v. Electricity Commissioners; Ex parte London Electricity Joint Committee Co. (1920) Ltd. (1924) 1 KB 171, at p 205 . But the legislature may displace the rule and provide for the exercise of such a power without any opportunity being afforded the affected person to oppose its exercise. However, if that is the legislative intention it must be made unambiguously clear. In the event that the legislation does not clearly preclude such a course, the court will, as it were, itself supplement the legislation by insisting that the statutory powers are to be exercised only after an appropriate opportunity has been afforded the subject whose person or property is the subject of the exercise of the statutory power. But, if the legislation has made provision for that opportunity to be given to the subject before his person or property is so affected, the court will not be warranted in supplementing the legislation, even if the legislative provision is not as full and complete as the court might think appropriate. Thus, if the legislature has addressed itself to the question whether an opportunity should be afforded the citizen to be relevantly heard and has either made it clear that no such opportunity is to be given or has, by its legislation, decided what opportunity should be afforded, the court, being bound by the legislation as much as is the citizen, has no warrant to vary the legislative scheme. But, if it appears to the court that the legislature has not addressed itself to the appropriate question, the court in the protection of the citizen and in the provision of natural justice may declare that statutory action affecting the person or property of the citizen without affording the citizen an opportunity to be heard before he or his property is affected is ineffective. The court will approach the construction of the statute with a presumption that the legislature does not intend to deny natural justice to the citizen. Where the legislation is silent on the matter, the court may presume that the legislature has left it to the courts to prescribe and enforce the appropriate procedure to ensure natural justice. In my opinion, this statement of relevant principle is in accord with the authorities, including particularly the case of Wiseman v. Borneman (1971) AC 297 . (at p110)

COSTS

[23] This is nothing but a misguided attempt to issue DPOs so I make no award as to costs.

ORDERS

[24] The Orders are therefore as follows:

1. That the Departure Prohibition Orders dated 29 June 2010 issued by the Commissioner of Inland Revenue against the Applicants be revoked forthwith.
   
2. That there is no order as to costs.
   

Sosefo Inoke
Judge