City Centre Ltd v Attorney General [2003] SBCA 12; CA-CAC 2003 (28 August 2003)

IN THE SOLOMON ISLANDS COURT OF APPEAL

NATURE OF JURISDICTION: Appeal from Judgment of the High Court of Solomon Islands

COURT FILE NUMBER: Civil Appeal No .... of 2003 (On Appeal from High Court Civil Case No........ of .................)

DATE OF HEARING: 28^th August 2003
DATE OF JUDGMENT:

THE COURT: Lord Slynn of Hadley P, McPherson JA, & Ward JA

PARTIES:

CITY CENTRE LTD (APPELLANT)

-V-

ATTORNEY GENERAL (RESPONDENT)

ADVOCATES:

Appellant: Mr Andrew Radclyffe
Respondent:

KEY WORDS: Set-off – whether available against Crown – whether possible where no counterclaim filed – Civil Procedures Rules 1964 O 21 r 3.

EX TEMPORE/RESERVED: RESERVED
ALLOWED/DISMISSED: DISMISSED

JUDGMENT

The appellant, which is the plaintiff in action HCC 153 of 2002, is the lessor of part of a building to two instrumentalities representing the Crown. By June 2002 an amount of some $574,290.20 was owing to the appellant for payments due under the lease. On 7 August 2002 the plaintiff obtained leave to enter judgment against the defendant Attorney-General on behalf of the Crown for that amount together with interest and costs of the action. The judgment was entered in default of defence. There is no dispute about it or about the amount, of which no part has been paid by the Crown.

For the years 2000 and 2001 the appellant was assessed for income tax under the Income Tax Act (Cap 123). The amount owing under those assessments is said to be $127, 200. 48. The appellant claims that it is only $97,754.00; but it is, for present purposes, not necessary to resolve the difference. The question in issue on the appeal is one of law only into which the precise quantum of the tax liability does not enter at this stage.

Against its liability to the Crown for income tax the appellant claims to be entitled to set off the amount (or part of it) of the judgment debt for $574, 290.00 for which the Crown is indebted to it. It applied by summons in the action for an order that the income tax due from it to the Crown be set off against that judgment debt, interest, and costs. The application came before the learned Chief Justice, who dismissed it with costs. This is the appeal against that decision.

The action in which the judgment was given and the order claimed was instituted pursuant to the Crown Proceedings Act (Cap 8). It abolished the old form of proceedings by way of petition of right and provided for a claim of this kind to be enforced by proceedings against the Crown in the name of the Attorney-General in accordance with the rules of court applicable to the court in question (see ss 3, 11, and 15). By s 18(1) of the Act the Court has power to make all such orders as it has power to make in proceedings between subjects, “and otherwise to give such appropriate relief as the case may require.” There are some statutory exceptions to these provisions but it is not necessary to examine them here.

The first question is whether, if these proceedings had been between subjects, the court would have had power to make the order sought for setting off the appellants’ tax debt against the amount of the judgment in its favour against the Attorney-General on behalf of the Crown. Some rules of law are well settled. Set-off is exclusively a creature of statute. See 29 Halsbury § 683, at 482 (2^nd ed). It was originally permitted by the old Statutes of Set-off of 1728 and 1734, but only where the debts sought to be set off were both liquidated sums: McDonnell & East Ltd v McGregor [1936] HCA 28; (1936) 56 CLR 50 (Dixon J). Later, equity allowed an unliquidated demand to be set off, but only if it “impeached” the indebtedness on the other side, in the sense that it arose out of the same or a closely related transaction. That is not so here. The judgment debt arising from the lease and the income tax debt are not related to one another in any such way.

The second settled rule is that set-off is purely a matter of procedure which arises only within and not outside an action or proceeding: 29 Halsbury §§ 683-686, at 480, 484-485 (2^nd ed). This is reflected in the Rules contained in O. 21 r. 3 of the High Court (Civil Procedure) Rules 1964. Order 21, r. 3 permits a right or claim to be set off or set up by way of counterclaim by a defendant in any action, and also enables the court to pronounce a single final judgment in the same action both on the claim and the cross-claim. Here the defendant has at all times refrained from raising the tax indebtedness as a defence or counterclaim in action HCC 153 of 2002, and there is no procedure by which it can be compelled to do so. No authority was cited by the appellant for saying that the court can order that the tax debt may or must be set off except as an incident of a defence to or a counterclaim in the action.

In any event, the claim to recover the crown’s indebtedness arising under the lease has now passed into and merged with the judgment, which has not been appealed against, and there is no longer any question of defending the action by set-off or otherwise. The High Court has an inherent power of setting off a money judgment in favour of one party against a money judgment in favour of another party given in separate actions in the Court. There are, however, not two actions or judgments in this instance, but only one in favour of the appellant. The Crown does not have a judgment for the tax debt owing by the appellant against which the amount of $574, 290 could or can be set off either wholly or in part.

We have considered whether it would be possible to make use of s 18(1) of the Crown Proceedings Act “to give such appropriate relief as the case may require.” We do not consider that this provision authorizes an extension of the jurisdiction of the court so far as to justify the making of an order going beyond the limits of the existing power to permit a set-off between subject and subject.

The Crown Proceedings Act is, as its name and provisions imply or provide, a procedural statute designed to place the Crown on a footing of equality (or nearly so) with other civil litigants. It would be surprising if s 18(1), which embodies that philosophy, had the effect of placing the Crown in a less advantageous position than other litigants in relation to setting off debts. There are other reasons which also support this conclusion. Section 33(2)(f) of the Crown Proceedings Act authorizes the making of provisions in rules of court restricting the right of set-off in proceedings by or against the Crown. It does not enlarge the existing rights of set-off under those rules. There is nothing in the provisions of paras. (i) to (iv) of s 33(2)(f) that would justify using the rule-making power so conferred to change the substantive law relating to set-off.

In addition, the debt which is sought to be made the subject of this set-off is income tax, to which some special considerations apply. By s 47 of the Income Tax Act, income is to be assessed and charged to tax on the income of a person. By s 83(1) the tax charged on each assessment is due and payable on or before the 20^th September following the year to which the assessment relates. Tax not paid on or before due date may be sued for and recovered in a court of competent jurisdiction by the Commissioner: s 88(1). The subject of set-off of tax liabilities is dealt with in Division C of Part VII of the Act. Where the Act intends to permit a set-off of tax it says so expressly, as in ss 40, 41, and 42 of the Act. These provisions are limited to particular subjects none of which includes indebtedness of the kind that was the subject of the judgment obtained on 7 August 2002. Once paid or recovered, money comprised in tax receipts must be paid into the consolidated fund to await appropriation by Parliament: see Constitution ss 100-103. The whole structure of the Act is inconsistent with the notion that a taxpayer may intercept his liability for and to pay tax by setting it off against an indebtedness owed to him on some other account that is in no way related to his statutory obligation to pay tax. In Attorney-General v Guy Motors Ltd (1928) 2 KB 78, Rowlott J held that a taxpayer was not entitled to set off a debt due to him against a claim for income tax.

For these reasons, rather than those given by the Chief Justice, we consider that there is no power in the Court on the application of the appellant to order a set-off of the tax due by the appellant against the liability due to it under the judgment. If there were such a power and the court exercised it, we would not regard it as attracting the application of s 25 of the Income Tax Act concerning tax avoidance.

We would only add by way of friendly reminder to the Commissioner that taxpayers who, through non-payment of debts due to them by the Crown, are forced into insolvency are no longer able to trade and earn income on which in subsequent years they would be able to pay tax. But this is a dictate not of law but of common sense about which we need say no more.

The appeal should be dismissed with costs to be taxed.

President, SI Court of Appeal
Judge of Appeal
Judge of Appeal