Legal Technicalities in Appellate Determination of Tax Disputes – A Rejoinder

Introduction

This write-up is a rejoinder to my previous article on legal technicalities and appellate determination of tax matters where I reviewed the resolution of Issue one by the Federal High Court in Dauda v FIRS.[1]

A number of stimulating inquiries was received which, when analysed, can be reduced into five essential questions. I have attempted to answer these queries below. In addition, I have included likely circumstances may raise an issue of fair hearing in inconsistent participation by a Tax Appeal Commissioner and when the issue of miscarriage of justice may result from variation in the panel of the Tribunal. Views expressed are my personal opinion.

?Queries

1.0.???????????? Was the court wrong to have made comparisons between the Tax Tribunal and other tribunals especially since at the point of that analysis, the court was looking at the procedures adopted by administrative decision bodies as opposed to their subject matter expertise?

?It is arguable that the Federal High Court (or the ‘FHC’ or the ‘court’) was not wrong to have made comparisons between the Tax Appeal Tribunal (or the ‘TAT’ or the ‘Tribunal’) and other tribunals.? At the point of that analysis, the court was looking at the procedures adopted by administrative decision bodies as opposed to their subject matter expertise. It can also be argued that since the jurisprudential basis for all administrative bodies are the same, their compliance with procedural fairness ought also to be consistent across board. While this view appears logical and tenable, the relevance or impact of the subject-matter of the adjudication cannot be deemphasized. In addition, the TAT is a specialist tribunal whose members are experts drawn from various fields all connected to tax while members of the Legal Practitioners’ Disciplinary Committee (or ‘LPDC’) are all legal practitioners.

?First, tax is a major source of government revenue. In fact, tax revenue is perhaps the most sustainable revenue source since oil is not infinite. On the other hand, professional misconduct is a disciplinary issue. So, the LPDC deals with disciplinary issues of its members, the Tribunal deals with issues of taxation. In addition, the LPDC decision will affect an individual legal practitioner’s ability to carry on his trade and therefore his pocket (personal economic wellbeing), the TAT decisions affect national revenue in terms of government’s ability to fund critical infrastructures and amenities. It impacts the economic as well as the financial health of the entire nation. Therefore, the approach of the two fora, that is, TAT and LPDC, essentially differ. The latter seeks to protect the integrity of the legal profession, the former exists to fairly adjudicate tax matters without undue adherence to the technicalities, rigidity and formalities of conventional courts and thereby build public trust and confidence in the tax system. In addition, proceedings before the LPDC are strictly adversarial and the rigid rules of evidence reign. The same cannot be said of the Tribunal.

Tax appeal is materially different from disciplinary hearing. Tax matters are suis generis.[2] They are considered so important that special legislations are made for them. The provisions of legislations are specially interpreted. In Federal Inland Revenue Service v Citibank Nigeria Limited,[3] the Court of Appeal on the importance of interpreting tax laws, stated that the court would have to be liberal as what was involved is the tax which is to be used for the generality of the public. A court should not interpret a tax law in favour of a party who does anything to evade paying tax. A court should not applaud any move by any person to circumvent the payment of tax. While holding such position, this court must warn itself as brought out by the Respondent and the lower court that when the law is not clear the law will be interpreted in favour of the tax payer. That should not be extended to encourage tax evasion, I must hasten to add.

Furthermore, the processes used at the TAT are not expected to comply with strict procedures of a normal court.[4] The TAT is a statutory tribunal, LPDC is a professional disciplinary body. The TAT’s proceedings are a continuation of the taxman’s administrative review process. The difference is that the Tribunal’s administrative adjudication is external.

2.0.???????????? Why not replace ‘technicality’ in this case with ‘procedural fairness’ and being an administrative decision making body, procedural fairness is akin to jurisdiction.

Technicality is actually a broad term. The spectrum of technicality is almost inexhaustible. In so far as a matter was not heard on the merit/substance, it was decided on technicality. That a member was inconsistent in the TAT’s proceedings relates to technicality not the merit of the case. Irregularity, procedural issues and all are species of technicality. Rephrased, once a decision was not based on the substance of the case, whether it is based on procedural irregularity or failure to serve pre-action notice or any of those filtering devices, it is a decision based on technicality.

Courts have been enjoined to shun technicalities and uphold substantial justice.[5] Deciding tax matters on such basis will adversely affect the business climate. Investors are likely to see Nigeria as an unfriendly business environment with concomitant effect on the country’s ranking on ease of doing business. Tax dispute resolution has extra territorial impact in this age of technology and the internet. Information is available on a global scale real time.

3.0.???????????? A member who did not hear part of the testimony will always bring to question- how did he make a decision? If it is likely that he relied on his colleagues, then there is a presumption that his independence as an independent decision maker has been compromised. That in turn leads to a breach of procedural fairness.

First, the decision of the TAT is not required to be unanimous. Generally, it is to be a majority decision. Furthermore, individual members are not expected to write separate decisions. In fact, dissenting decision is not known to the tax appeal system. The TAT’s decision is institutional rather than individualistic. This is why the question of a member’s independence being compromised cannot arise. Observations during sitting of the TAT have shown that each commissioner takes note during proceedings. The chairman’s records and the transcripts for each sitting are available to the commissioners as well as parties before the TAT. Consequently, it would appear that an inconsistent member can always access the entire record of proceedings for every appeal including when he/she was absent. Moreover, the TAT is often called upon to draw inferences from the disputed facts or apply the law to the disputed facts as well as agreed facts.

In addition, the Tribunal’s decision, whether unanimous or by a majority, represents the position of the Tribunal on an appeal. For this reason, only the chairman is by law required to sign the judgment. It is not mandatory for members to sign. Therefore, the view of the majority of the members must intersect to form and represent the decision of the Tribunal. In this way, the position of an inconsistent member can hardly detract or affect the broader view of the majority. If his position aligns with the view of the consistent majority, then there is no problem. If it does not, it is immaterial to the determination of the appeal.

Also, the internal arrangement for deciding appeal enjoy some secrecy much like the jury system whose mechanics and deliberations are never divulged to the public. How they arrive at their decision is not a matter for public discourse, it is within their special knowledge. What the law demands is a statement whether a decision was reached unanimously or by a majority and for the decision to be signed by the chairman. Nevertheless, unofficial information suggest that each commissioner is assigned specific task in judgment writing and every commissioner is expected to offer an opinion on the merits of the case furnishing reasons for his/her opinion.

3.1.???????????? Inconsistent Participation and Fair Hearing

?Likely instances where inconsistent participation or variation in the panel of the TAT may implicate fair hearing include:

1. the trial was not heard by a legal practitioner contrary to the provisions of the law which specifically requires the tribunal to be chaired by a legal practitioner since complex issues of law, procedural and substantive, often arise in the course of proceedings. It must be shown that legal issues arose which were inadequately treated at the trial;
2. the commissioner who chaired a particular session the TAT heard a particular party’s case was not a legal practitioner whereas when the other party’s case was heard, the hearing was chaired by a legal practitioner;
3. when party A’s case was heard, all the members were present however, it was not the same when party B’s case was heard;
4. the commissioner who chaired the hearing when a party opened and closed its case was a legal practitioner with less than 15 years post call experience contrary to the prescription of the law (this argument is weak but tenable); and
5. the chairman did not hear crucial part of the evidence of a party (even this is subjective as a party will always claim all evidence is crucial because it is his case. Is there an objective standard or parameter to make that distinction? So, the problem will be how to determine if he heard crucial part of the evidence!).

In each of the instances above, something more than the mere absence of a commissioner or inconsistent participation of a commissioner is at work. The parties were not afforded equal treatment nor were they provided identical opportunities to air their grievances. Fair hearing entails affording both parties similar rights, privileges, opportunities and facilities to present their cases. In Dauda v FIRS, both parties were treated alike and exposed to similar hearing process.

3.2.???????????? Events likely to Occasion Miscarriage of Justice

?All the five instances that may implicate fair hearing may create a prima facie case of miscarriage of justice. In addition, another scenario is when a legal mind (say, the chairman if he were the only legal practitioner in the panel) was not present when evidence was led by both parties. While this may occasion a miscarriage of justice, it cannot sustain an allegation of infringement of fair hearing. Reason being that there are tribunals headed by non-lawyers, for example, the ICAN Tribunal. Their decisions are impugned on the ground of fair hearing. ?

?It should be noted that the TAT’s case may be slightly different from a tribunal like the ICAN Tribunal because by law it is expected that the TAT chairman should be a legal practitioner; there is no such statutory prescription for ICAN Tribunal.

?Requiring the chairman to be a legal practitioner will suggest that in his absence, a commissioner of a similar qualification should chair a particular hearing. This is a logical inference. Therefore, where the commissioner who chaired the proceeding in the absence of the chairman is not a legal practitioner, miscarriage of justice may be presumed.

4.0.???????????? If it is on a subject matter expertise basis, what should be the standard of review? Correctness? Fairness? What is the amount of deference the court should give to subject matter expert tribunals?

?Appeals to the FHC are on points of law alone. However, the Tribunal’s findings of fact could become a question of law on appeal where a ground of appeal challenges the inference drawn by the TAT from evidence placed or presented before it, or on ground that the TAT’s factual findings are perverse inter alia. The deferential approach of the FHC will depend on the questions to be considered and determined in the appeal.

4.1.???????????? Questions of Fact

?In its appellate jurisdiction, the FHC adopts the Tribunal’s findings of fact unless an error of law occurred or the findings are perverse and unsupportable by evidence.[6] Generally, the Tribunal has the duty to evaluate evidence and to ascribe probative value. It is not the business of an appellate court to substitute its own views for the views of the TAT.[7] Hence, the court should defer to the TAT’s findings of fact as the trier of facts. However, an appellate court can intervene in the TAT’s findings of fact in the following instances:

• where there is insufficient evidence to sustain TAT’s judgment; or
• where the Tribunal fails to make proper use of the opportunity of seeing, hearing, and observing the witnesses; or
• where the findings of fact by the TAT cannot be regarded as resulting from the evidence; or
• where the Tribunal has drawn wrong conclusions from accepted evidence; or
• where the TAT has taken an erroneous view of the evidence adduced before it; or
• its findings are perverse in the sense that they do not flow from accepted evidence; or
• the TAT’s findings are not supported by the evidence before it.[8]

?Except in the above instances, the appellate court should defer to the Tribunal’s findings of fact.?

4.2.???????????? Question of Law

?On questions of law, this has always been held to be the exclusive precinct of the court even when there is no concurrent first jurisdiction over tax statutes. A plethora of judicial authorities has identified the Tribunal has the forum of first instance in respect of tax legislations stipulated in the First Schedule to the Federal Inland Revenue Service (Establishment) Act 2007 (or the ‘FIRS Act’) while the FHC’s appellate jurisdiction in tax matters is founded on the provision of section 28 of the Federal High Court Act (or the ‘FHC Act’) as well as paragraph 17(1) of the Fifth Schedule to the FIRS Act (or the ‘Fifth Schedule’). The beauty of this approach (the FHC hearing appeals on questions of law de novo) is that it obviates a situation where both the FHC and the TAT would reach different and conflicting conclusions on the interpretation of tax statutes. ?

?There have been arguments in other jurisdictions that the courts should defer to the statutory interpretation of specialist tribunals like the TAT when adjudicating disputes concerning its areas of specialty. I align with this view. Here is where I believe, the standard of review could play an important role. The choice should be between reasonableness or correctness. In other words, TAT’s decisions should be presumptively reviewed for reasonableness or correctness. I am more inclined to the correctness standard of review.

?According to the Canadian Supreme Court in Society of Composers, Authors and Music Publishers of Canada v Entertainment Software Association,[9]?reasonableness was the lower standard wherein a court merely looked to see if the administrative decision was ‘transparent, intelligible and justified’. In other words, did the decision fall within the reasonable array of outcomes available to the administrative body? On the flip side, correctness is said to be more stringent allowing for greater judicial involvement. It allowed the court to ask whether or not it would have made the same decision as the administrative body, if in its place.

?Correctness review standard is said to promote legal consistency, a key element of the rule of law. On the other hand, it is argued that inconsistencies can never be eradicated completely. While this is true, it does not mean that they should not be avoided wherever possible.[10] Nigeria’s tax appeal framework has not prescribed any standard of review?either through explicit judicial decisions or by statutes. Notwithstanding, Nigerian superior courts, like those of many common law jurisdictions have found that they have the power to set aside an administrative decision on the basis that it was contrary to the constitution, ultra vires the enabling act, resulted from a misapprehension of the decision-maker’s jurisdiction or was unreasonable in some sense.

?Having regard to the nature and character of tax, it is suggested that the FHC should adopt and apply the correctness standard of review rather than the reasonableness test.

5.0.???????????? If it is on a technical issue like this, should they substitute their decision or send it back to be heard by another panel?

Owing to the constraints of the zoning system operable under the extant framework of tax dispute which prescribes a panel per zone (save Lagos where two additional panels were created extra-statutorily to ease the case-load on a single panel), it will be infeasible for the FHC to send an appeal back to be heard by another panel. Accordingly, the viable alternative is for the FHC to hear the appeal de novo on the merits and substitute its decision for the TAT’s decision.

Conclusion

?The important point to note is that the FHC should not use technicality as a tool to compel an aggrieved taxpayer to pay the disputed assessment. The taxpayer should not be shut out of tax justice on that basis. He will be disgruntled with the tax system. In the same way, technicality should not be employed by the court to deprive government of legitimate tax revenue. When tax appeals are heard on the merit, the interests of all parties are completely and effectually determined and their rights on the issues in the appeal are put in proper perspective.

?The courts in a plethora of authorities made it clear that justice cannot be dispensed with on mere technicality. That the Courts are there to do substantial justice rather than adhering to mere technicality.

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[1] That article is available at < https://www.dhirubhai.net/pulse/legal-technicalities-appellate-determination-tax-olanrewaju-3rkzf>.

[2] FIRS v Chevron Nigeria Ltd (2018) 38 TLRN 1, 25.

[3] (2019) 46 TLRN 22.

[4] (n 1) 28.

[5] ibid.

[6] Olufosoye & Ors v Olorunfemi (1989) LPELR – 2615 (SC) 9.

[7] Mr. Grant Kayode Yankey v Florence Austin (2020) LPELR – 49540 (CA) 28.

[8] FHA v Olayemi (2017) LPELR – 43376 (CA) 1, 69 – 71. See also Edjekpo v Osia (2007) 8 NWLR (Pt. 1037) 635; (2007) LPELR – 1014 (SC) 1, 46 – 47.

[9] (2022) SCC 30.

[10] ibid.