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Sailing Through Troubled Waters

Apr 19, 2019

Frequently businesses discover when they are the subject of regulatory attention that government applies policies and implements decisions which are legal fictions based on what the regulator might like to do but are not things the Parliament authorised the regulator to do. Usually when the matter goes legal, the regulatory party will get higher quality legal advice, seek to retract their earlier decision and then try to remake the decision on a sounder basis. This can then leave the affected business and their advisers in a state of confusion about which decision stands and which decision has to be appealed.

In a Goods and Services Tax case against the Internal Revenue Commission (IRC) which went on Appeal to a three man bench of the Supreme Court the consequences of such regulatory behaviour were considered as a preliminary point. Aspects of the case remain yet to be resolved so we cannot say too much about it. But we are able to report that the matters before the Supreme Court have settled definitively for the first time in Papua New Guinea that the principle of ‘functus officio’ applies to the bureaucratic arm of government in Papua New Guinea as part of the Underlying Law.

The principles of “functus officio” are that once a decision has been made and communicated the regulator is bound with the decision and loses all power remake or change the decision in order to complicate appeal or review processes or to otherwise antagonise the regulated party concerned. If the regulator is unhappy with their original decision, the only change they can make is to correct it.

But it is not all plain sailing. The Supreme Court found that if the decision originally made by the regulator is so impugned or beyond power that it is void, then the legal conclusion will be that no decision was ever validly made. Hence, the second or a subsequent decision may by default become the first and binding decision.

That was the outcome in a preliminary appeal in South Seas Tuna Corporation Ltd v Internal Revenue Commission in which the firm represented the taxpayer. In that matter the IRC made three overlapping GST assessments. The Court found for technical reasons that the first two communications were not assessments even though the IRC had made journal entries and was demanding money off the taxpayer.

It remains that a party subject to regulatory attention who receives multiple communications and directions from a regulator still needs to take careful legal advice to determine whether the first or subsequent decisions were ever valid and to enable review and appeal processes correctly so that all bases are adequately covered or preserved.

O’Briens has a substantial administrative law practice.

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