Decision date: 11 July 2018
Case: XXX  NZTRA 05
Act(s): District Court Rules 2014 r 10.21
Keywords: Splitting trial, separate issues, questions decided in advance of substantive trial
This is an interlocutory application by the disputant for an order to have two questions decided in advance of the substantive trial. The application arises by the disputant challenging the Commissioner of Inland Revenue’s (“the Commissioner”) assessments of income tax and GST on a number of grounds. The Authority held that the disputant did not discharge the burden to show that it is appropriate for either question to be heard in a separate trial.
The disputant was the sole director of AB Limited (“the Company”) from 30 September 2004 until it was placed into liquidation on [X] December 2009. It was removed from the Companies Register on [Y] August 2015.
At the time that the Company went into liquidation, it had a self-assessed GST liability of $3.8 million. The disputant does not seek to challenge those self-assessments.
On 28 March 2014, the Commissioner reassessed the Company’s income tax for the years ended 31 March 2008 and 31 March 2009 together with certain GST periods. The Company’s total tax liability at that date was assessed at $13,032,717.82 including interest, shortfall penalties, late filing penalties and late payment penalties.
On 31 March 2014, the Commissioner made the disputable decision that the disputant is liable as agent for the income tax and GST liabilities of the Company under s HD 15 of the Income Tax Act 2007 and s 61 of the Goods and Services Tax Act 1985 respectively.
The application for a separate trial in respect of both Question One and Question Two is dismissed.
Splitting of the Trial
The Authority confirmed the assumption that all matters at issue are to be determined in one trial because that would normally be the most expeditious and efficient manner for dealing with a proceeding (Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1998) 12 PRNZ 333 at 334 and Turners and Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at ). The burden to displace the presumption rests on the party seeking to split the trial. The burden has been variously described as “not insignificant”, “moderate” and “heavy” (Haden v Attorney General (2011) 22 PRNZ 1 (HC) at , KPMG New Zealand v Gemmell HC Auckland CIV-2018-404-4288, 27 March 2009 at  and Clear Communications at 335).
The Authority has a broad discretion in granting an order under r 10.21 of the District Court Rules. The most important questions to be addressed before granting an application for a split trial are as follows (Haden v Attorney General at ):
The Authority used the questions as a framework for its consideration and held that:
Question One could be determined as a discreet issue, however the determination of this Question would not bring the proceedings to an end and will only settle the scope of the evidence to be given at the substantive hearing which will affect the length and cost of the trial;
The time required to hear the additional evidence and submissions is estimated at only 4 days, and if Question One is held in the disputant’s favour, there will be no time saved in the substantive trial. Rather, further lead time and cost will have been added in relation to the separate trial.
No right of appeal exists from an Authorities decision on an interlocutory application. Therefore, there would be no right of appeal from the Authority’s decision on either Question One or Question Two. It would be necessary for the substantive hearing to be completed before any appeal can be filed in the High Court. This will cause difficulties including further discovery being required, duplication of time by counsel, witnesses needing to be recalled, and availability of the Authority. The possibility of an appeal is a significant consideration which the Authority held that the facts tend strongly against the granting of this application.
On Question One the Authority held that the disputant did not discharged the burden of showing that it is appropriate to direct that a separate trial be held.
The same difficulties addressed above in Question One also applied to Question Two and the burden was not discharged.