Bougainville Copper Ltd v Commissioner General of Internal Revenue [2009] PGSC 48; SC1020 (19 October 2009)

SC1020

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 111 OF 2009

BETWEEN:

BOUGAINVILLE COPPER LTD
Appellant

AND:

COMMISSIONER GENERAL OF INTERNAL REVENUE
Respondents

Waigani: Injia, CJ
2009: 19th October

SUPREME COURT - practice and procedure – application for stay made pending determination of appeal of National Court’s decision to grant summary judgment – principles on grant of stay considered – refusal or grant of stay is discretionary and exercised on proper principles and grounds – no arguable case on appeal demonstrated – trial judge did not err in the interpretation and application of the conclusivity provisions of ITA – on overall exercise of discretion applicant has made out an arguable case – stay order granted – s.19 Supreme Court Act, ss.262 & 316 Income Tax Act, Order 12 rule 38 National Court Rules

Cases Cited:

Chief Collector of Taxes v Bougainville Copper Ltd (2007) SC853.
Gary McHardy v Prosec Security and Communication Ltd [2000] PNGLR 279
Post PNG Ltd v Westpac Bank Ltd (1999) SC608
Niusik Holdings Ltd v Yapao Lawyers (2003) SC703

Counsel:

F Griffin QC with D Katter, for the appellant
M Cooke QC with F Griffin, for the respondent

19th October, 2009

1. INJIA, CJ: This is the appellant’s (BCL) application for stay made under s 19 of the Supreme Court Act. It is made pending determination of an appeal against the National Court’s decision to grant summary judgment in the sum of K45,899,606.49 in WS No.1334 of 2007 in favor of the respondent (IRC). The amount in the summary judgment represents the total sum due under various notices of tax assessments (including amended assessments) issued by IRC for the years 1995 – 2005. The application is contested by IRC. Both parties filed affidavits and made oral and written submissions and I reserved my ruling to consider the material and submissions put before me. This is my ruling on the application.

2. The principles on grant of stay are settled. The leading case is Gary McHardy v Prosec Security and Communication Ltd [2000] PNGLR 279 (McHardy case). The grant or refusal of stay is discretionary and it is exercised on proper principles and on proper grounds. The Court must start from the basic premise that the judgment creditor is entitled to enjoy the benefit of the judgment. There are ten (10) other considerations which are enumerated in that case. In exercising its discretion, the Court must consider all relevant and appropriate circumstances in determining whether it is just and reasonable that the order ought to be stayed. In my view, it is not intended that the discretion should be exercised on all or selected considerations and factors enumerated in McHardy; rather the Court is required to consider the totality of those relevant factors and circumstances, in order to do justice in the circumstances of the case before it. The circumstances of a particular case may warrant greater or less or even no weight to a particular relevant factor(s) and then again, that is a matter of discretion. Also in exercising its discretion the Court is to have regard to the evidence or material placed before the Court by the parties: Post PNG Ltd v Westpac Bank Ltd (1999) SC 608; Niusik Holdings Ltd v Yapao Lawyers (2003) SC 703. The onus is on the applicant for stay to persuade the Court to exercise its discretion in his or her favor.

3. Counsel made submissions on the application of the principles in McHardy to this case and I deal with them in the course of my ruling.

4. The summary judgment was sought and granted under O 12 r 38 of the National Court Rules (NCR). Both parties treat this particular summary judgment as a special one based on the construction of relevant provisions of Income Tax Act (ITA) but more particularly what is described as the conclusivity provisions of ITA. The application ought to be determined against the criteria for grant of summary judgment under NCR O 12 r 38, otherwise the nature of the application and judgment granted may be easily taken out of context and misconstrued as a judgment after trial on the merits which attracts different standards of scrutiny of the judgment.

5. Under NCR O 12 r 38, summary judgment is available where there is evidence of facts supporting the claim or part of the claim and there is evidence given by the plaintiff or some responsible person that in his or her belief the defendant "has no defence to the claim or part of the claim". In proceedings before the National Court, both parties relied on affidavit evidence on the claim and the lack of defence to the claim. The trial judge considered the evidence. The parties also advanced their respective cases on the construction and application of the conclusivity provisions to support their respective positions on the case. The trial judge considered the notices of tax assessments issued under ITA and concluded that they were conclusive as to BCL’s tax liability and granted summary judgment in the total amounts represented in the notices.

6. In considering the application of the different factors set out in McHardy case, and after considering submissions of counsel, I consider that the special nature of the summary judgment given in this case demands that paramount considerations be given to four factors namely, the advantage enjoyed by the respondent as the beneficiary of the judgment, error(s) in the judgment, whether that error(s) is sufficient to raise an arguable case on appeal and the overall interest of justice. The error must relate to the main defences raised by BCL to resist the application for summary judgment. A copy of the Amended Defence filed in WS 1334 of 2007 is before me for my consideration.

7. The trial judge considered the evidence in relation to BCL’s primary tax liability and BCL’s additional tax liability imposed under s 262 and s 316 of ITA. In respect of primary tax, the judge found that there was no contest on BCL’s primary tax liability. The primary tax liability was between K1,041,974.50 (BCL’s calculation) or K4,777,963.01 (IRC’s calculation). Therefore in terms of the issue of liability on the claim, there was admission from BCL that it owed IRC primary tax of at least K1,041,974.50. The dispute was therefore on the amount of extra primary tax assessed (K3,735,988 .51). In relation to additional tax, BCL contested the whole of the tax imposed under s 262 tax ( BCL’s calculation was K27,987,212.99 & IRC’s calculation was K29,029,187.49) and s 316 tax ( BCL said K16,860,606.49 & IRC’s calculations was K 12,082,455.99).

8. The appellant’s contention before me is that the primary tax was only a small proportion of the total tax assessment compared with a huge tax for additional s 262 and 316 taxes. The conclusivity provisions applies only to primary tax liability and but not to s.262 & s.316 taxes which were disputed. The notice of assessment does not include those additional taxes. The judge erred in law when he determined that s.239 (1) notice of assessment do include additional taxes. The judge failed to distinguish between the primary tax and additional taxes and granted summary judgment in respect of the disputed additional taxes as well.

9. The appellant’s main point of contention in the appeal is on the application of the conclusivity provisions to the facts of this case. Indeed seven (7) of the twelve grounds of appeal (grounds 4.1 – 4.7) relate to the conclusivity provisions.

10. There is no question that the primary tax assessment amount made under s.231 is posted on the notice of assessment issued under s.236. This notice of assessment is valid and conclusive for all tax purposes by virtue of the conclusivity provisions. The main conclusivity provisions which are relevant in this case are ss 239 (1) & 257 but other conclusivity provisions are ss 237, 238, 259, 263, 264, 264 & 312. Section 237 is an important provision. Section 237 provides that the "validity of an assessment is not affected by reason that any of the provisions of this Act have not been complied with." It is clear from these provisions that upon issue of notice of tax assessment, it is valid for all intention purposes, that the tax assessed becomes a debt that is due and payable, and if it is unpaid the debt is recoverable in a Court of law irrespective of whether an appeal against the assessment has been filed and pending determination by the National Court. The principle of "pay now litigate later" is the dominant principle that underlies these conclusivity provisions.

11. Under ss 257 & 259, the tax amount fixed on the notice of assessment is due and payable by the taxpayer named in the notice on the date specified in the notice. The tax is payable irrespective of whether the assessment is the subject of an appeal or reference is pending before the National Court and "as if no appeal or reference were pending." There are good underlying reasons for this principle. The principle has been judicially affirmed in this jurisdiction: Chief Collector of Taxes v Bougainville Copper Ltd (2007) SC 853. The solvency of the State is imputed by law and that no amount of pre-paid tax is beyond the State’s capacity to repay or refund if the assessment is found to be erroneous or excessive by the Tax Appeal Tribunal or the National Court on appeal. Indeed in my view, the payment of assessed tax also works in favor of the tax-payer. Upon payment, the default penalty provisions and additional tax provisions may cease to apply.

12. I have closely read the conclusivity provisions in the light of the judgment of the judge’s consideration and application of these provisions. I have also read the various notices of assessments produced before me which were also before Judge. These notices are contained in Volume 4 of Mr Paul Coleman’s affidavit sworn on 10th September 2009 and filed herein and they include Amended Notices of Assessment issued under s 232. In the present case all notices of assessment specified dates for payment. I am satisfied that these notices do include the additional taxes under s.262 and s.316. As such there can be no argument about the correctness and validity of these notices of assessment. Whether the trial judge erred in holding by reason of construction of s.239(1), s.257 and other conclusivity provisions that additional taxes under s 262 and s 316 were lawfully included in the notices of assessment, is not an argument that is open under s 237. I accept IRC’s submission that the judge correctly found that the case was not about the correctness of the tax assessments but about whether the defences were maintainable under the existing law.

13. Consequently, by virtue of the conclusivity provisions, BCL is liable to pay the tax as per the notices of assessment and the principle of pay now and litigate later. If BCL has not paid the tax due on the dates specified in the notices, it stands liable to be levied additional taxes under s 262 and s 316 as long as those taxes remain unpaid, regardless of the appeal against the assessments now pending or regardless of these appeal proceedings before the Supreme Court.

14. I have read the judgment of the judge and note that he was making the same observations and findings as I have done. For these reasons I am not persuaded that an arguable case on appeal has been demonstrated that the judge erred in the interpretation and application of the conclusivity provisions.

15. The other issue before the trial judge was whether s 262 & s 316 were unconstitutional because they offended s 37(1),(3) & (4) of the Constitution. The judge correctly found that until a court of competent jurisdiction declared those provisions to be unconstitutional and invalid, they remained valid. The National Court has no jurisdiction to invalidate a statutory provision; only the Supreme Court has that jurisdiction. I am not persuaded that an arguable case has been demonstrated that the Judge erred in the conclusion that he reached on this point.

16. BCL’s counsel made submissions before me on what should be the correct interpretation and application of s 262 and s 316 and other provisions used by IRC to impose additional taxes and how the trial judge failed to distinguish between primary tax and those additional taxes. However this particular defence based on the construction of these provisions was not raised in BCL’s Defence, it was not argued before the judge and the judge did not deal with this point. BCL’s case as pleaded in its Defence was that s.262 and s.316 were unconstitutional as offending s.37 of the Constitution. Indeed in the Notice of Appeal no error is alleged in the grounds of appeal as to his honor’s findings and conclusions in respect of s.37 of the Constitution. Therefore it is not open for the appellant to raise these new points before me in the appeal.

17. For this reason I am not persuaded that BCL has an arguable case based on the additional tax provisions in s.262 and s.316 as offending s.37 of the Constitution.

18. In relation to s 41 of the Constitution, the BCL’s contention is that the judge failed to deal with the impact of s 41 of the Constitution upon ss 262 & 316 of ITA, that the actions of IRC in imposing additional tax in substantial amounts were harsh and oppressive in the circumstances of this case.

19. I have read the part of the Judge’s judgment on this point and note that the Judge was not prepared to entertain this defence in the absence of any evidence of bad faith. As a member of the Supreme Court that decided IRC v BCL (2008) SC 853, I recall the Court saying that an assessment may be challenged in a taxation appeal under s 41 of the Constitution. I accept BCL’s argument that the application of s 41 to the assessments under s 262 and 316 were not considered by the judge. BCL has raised the issue in ground 4. 11 of the Notice of Appeal. I am satisfied BCL has an arguable case on this point. However I would qualify this conclusion by saying that in IRC v BCL (2008) SC 853, the Court made a passing mention of a possible taxpayer’s remedy under s 41 of the Constitution. To this day the development of the law under s 41 is evolving. A s.41 challenge to a tax assessment in an appeal against assessment, or in a reference under ITA is yet to be fully tested and settled. BCL’s case under this criteria should be taken in this light. This reduces the weight to be given to the arguable nature of the case on this point.

20. In relation to the estoppel argument, BCL contends that it had a viable case against the IRC on estoppel and should have declined summary judgment. BCL contended in the Court below that IRC was estopped from changing its position after the position it adopted in 1990-2002 in which IRC issued taxation adjustment sheets without challenging the basis of the depreciation and BCL relied on this to its detriment. The judge held that the consequences of the estoppel would still go to the correctness of the assessments which would go against the conclusiveness of the assessments. The argument was therefore defeated by the conclusivity provisions.

21. Ground 4.8 of the notice of appeal raise this issue. I do not find any error on the face of this finding. Estoppel is a discretionary point and it should not stand in the way of clear statutory provisions on conclusivity. I am not persuaded that there is an arguable case on this point.

22. In relation to the Judge’s decision on provisions of the Facilities Agreement and Bougainville Copper Agreement, the trial judge’s decisions are not challenged in the grounds of appeal contained in the Notice of Appeal. They are not relevant in this application.

23. In conclusion, in respect of error of law and arguable case, except for the constitutional point raised in relation to s 41 of the Constitution, I am not satisfied that BCL has an arguable case in relation to the other points raised in the appeal.

24. I have considered the other considerations under Mc Hardy. Under the current state of the law, IRC is entitled to the immediate benefit of the judgment. IRC’s position is fortified by the conclusivity provisions.

25. Leave to appeal is not required.

26. There has been no delay in making this application.

27. In terms of hardship and inconvenience BCL would have to find the money to pay the judgment amount but when BCL’s operations in Bougainville remain closed, BCL would no doubt find it difficult to pay the tax in full. The State obviously would be kept out of tax funds to fund its budget. However there is no evidence before me to show that the government is dire need of funds and BCL’s tax money is required immediately. I am not persuaded that the Government will encounter financial hardship and inconvenience if this particular monies are not paid over whilst these appeal proceedings are pending.

28. Damages as an appropriate remedy is of little or no relevance in this case.

29. Finally the overall interest of justice is the remaining consideration. It is of paramount consideration in the circumstances of this case. The interest of justice is of course measured by reference to interest of justice according to law, whether procedural or substantive. The interest of justice in the Court facilitating a fair trial on the merits of issues of fact and law which are arguable and which could be decided in favor of any party to the litigation, is an important consideration in determining the interest of justice.

30. In the present case the Court’s overall exercise of discretion in granting summary judgment particularly on the additional taxes under s 262 and s 316 is challenged in this appeal. Although the grounds of appeal are not specifically pleaded to raise erroneous exercise of discretion as such in terms of allowing summary judgment for additional taxes under these provisions, there is a general challenge to the exercise of discretion manifested in all the grounds of appeal.

31. The overall exercise of discretion to grant summary judgment based on tax assessments under ITA requires an examination of the nature of IRC’s action in WS 1334 of 2007 and the rights available to parties in the litigation in the face of the conclusivity provisions. There is no provision in ITA which specifically provides for payment of assessed tax notwithstanding proceedings instituted by IRC under ss 263-264 which is pending determination similar to s 257 which applies to taxation appeals and reservations. Further there is no express provision which attaches absolute liability on tax assessments or confers tax assessments the status equivalent to that of a Court order. Under ss 263-264, a notice of tax assessment creates a civil debt which is recoverable in the National Court. If an action is instituted on the claim for debt owing under the notices of assessment, the taxpayer has a civil right to dispute the action/claim before the Court. The trial would run its normal course and if judgment is given in favor of IRC, it would be enforced in compliance with the law and rules of Court on enforcement of judgments. In my view the conclusivity provisions in no way are intended to bind or compel the Court to enter judgment on the taxed assessments as per the notices of assessment. In the absence of any provision in ITA which confers Court judgment status to notices of assessments, the sum fixed in the notices of assessments create a recoverable debt per se and nothing more at least in respect of enforcement proceedings under ss 263-264. For to conduct a trial in the action under ss 263 – 264 would be a complete farce and serve no purpose. It is for this reason that the conclusivity provisions should be properly interpreted and applied in actions instituted by IRC under ss 263 – 264 so that the debt created by the notices, if they are disputed, should be properly and fairly tried and judgment rendered on the merits. In the trial of course issues such as those raised by taxpayers’ liability to pay additional tax under s 262 and s 316 are properly determined.

32. I have read the judgment of the trial judge on his interpretation of the conclusivity provisions and their application to the case before him. In the light of the preliminary observations I have made above, I am satisfied BCL has made out a case to my satisfaction that there are arguable issues raised on the overall exercise of discretion to grant summary judgment without due process. The interest of justice is best served by granting stay of the judgment appealed from pending the hearing and determination of the BCL’s appeal.

33. Notwithstanding a number of considerations which favor the appellant, in the exercise of my discretion, the application for stay is granted. Cost on the application is reserved to be argued later.

_____________________________________
Young & Williams: Lawyer for the Appellant
Gadens: Lawyer for the Respondent