ALPHA CARS WHOLESALE (2018) LTD v THE COMMISSIONER OF INLAND REVENUE [2019] NZHC 291

ALPHA CARS WHOLESALE (2018) LTD v THE COMMISSIONER OF INLAND REVENUE [2019] NZHC291 [28 February 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-2384[2019] NZHC 291IN THE MATTER Section 290 of the Companies Act 1993BETWEEN ALPHA CARS WHOLESALE (2018)LIMITEDApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 28 February 2018Appearances: Mr C Van der Merwe for the CommissionerM S Sahu Khan a director of the Applicant, in attendanceJudgment: 28 February 2019ORAL JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment was delivered by me on 28 February 2019,pursuant to r 11.3 of the High Court RulesRegistrar/Deputy RegistrarSolicitors / Counsel:Inland Revenue, AucklandCopy to:M S Sahu Khan[1] On 25 October 2018 Mr Navin Dutt Sharma, a director of the applicant(Alpha), purported to file an originating application for an order under s 290 of theCompanies Act 1993 (the Act) setting aside a statutory demand issued by therespondent (the Commissioner) on 1 October 2018. The demand claimed the sum of$10,804.89 for outstanding PAYE and/or GST, together with penalties and interestthereon. It is common ground that the demand was served at Alpha's registered officeon 11 October 2018.[2] 25 October 2018 was the last available day for Alpha to make any applicationto set aside the statutory demand. Under s 290(2) of the Act, any such application hadto be filed and served within 10 working days of the service of the demand, and thatperiod could not be extended.1[3] The Commissioner filed a notice of opposition, and the application was calledbefore Associate Judge Andrew on 16 November 2018. At the hearing before theAssociate Judge on 16 November 2018, Mr M S Sahu Khan, a barrister, purported torepresent Alpha. He contended that he had delegated authority to do so under s 130of the Act. A copy of the delegation, signed by Mr Karishna Devi Sharma as soledirector of Alpha, was produced to the Court. The document stated that Alpha's boarddelegated to Mr Sahu Khan power to take all necessary steps and exercise all powersin the interests of the company as regards [this proceeding] and in particular with thematters listed in hearing on Friday 16 November 2018.[4] Associate Judge Andrew recorded in his Minute that Mr Sahu Khan advisedthe Court that he is a barrister but is currently the subject of a temporary suspensionby the Law Society pending the outcome of a complaint process. The Associate Judgenoted that the Commissioner disputed Mr Sahu Khan's authority to represent Alpha.[5] Associate Judge Andrew expressed "significant reservations" as to whetherMr Sahu Khan had authority to represent Alpha as claimed. His Honour noted that "Itis difficult to accept that s 130 can be used in such a way as to circumvent the rule inthe Court of Appeal decision in Re G J Mannix,2 where it was held that a body1 Companies Act 1993, s 290(3).2 Re G J Mannix [1984] 1 NZLR 309 (CA).corporate generally has to be represented in the High Court by a barrister and solicitorwith a current practising certificate.[6] Nevertheless, His Honour gave directions for the allocation of a half dayfixture, on the basis that the question of Mr Sahu Khan's ability to represent Alpha andthe substantive merits of the application would be addressed at the hearing.[7] Written submissions were filed for the Commissioner, and on 31 January 2019Mr Sahu Khan purported to file a submission on behalf of Alpha. Mr Sahu Khanadvised that he had recently been appointed a director of Alpha. He submittedgenerally that there are substantive relevant issues to be determined, and that aninjustice would be caused to Alpha if the demand were not set aside. He contendedthat Alpha is solvent, and he referred to various defences asserted by Mr Sharma inhis affidavits.[8] When the matter was called today, I directed that the matter of Mr Sharma'sability as a director to file documents in this Court, and Mr Sahu Khan's ability torepresent Alpha, should be considered as a preliminary matter. Having heard fromcounsel and Mr Sahu Khan on that issue, I now give judgment on it.[9] The law is now well settled on the circumstances in which a company directorwho is not a practising barrister or solicitor is permitted to file documents in, andappear before, this Court. In my judgment in AAM Ltd v Exotica Enterprise Ltd 3 Isummarised the legal position as follows:[26] In Dreamtech Designs & Productions Pty Ltd v ClownfishEntertainment Ltd, the Court of Appeal adopted the following statement ofStevens J in Kai Iwi Tavern Ltd v New Zealand Guardian Trust Company Ltd:Applicable legal principles[6] In Re G J Mannix Ltd this Court held that it is "well settled"that "a company has no right to be represented in the conduct of a casein Court except by a barrister or a solicitor in Courts or proceedingswhere solicitors have the right of audience ". Cooke J continued:There is a cognate rule that, apart from statutory exceptions, acorporation has no right to bring or carry on proceedings in a Court3 AAM Ltd v Exotica Enterprise Ltd [2018] NZHC 1399.except by a solicitor. This refers to the filing of documents – writs,statements of defence, notices of appeal, etc.[7] This principle has recently been affirmed by this Court inNew Zealand Cards Ltd v Ramsay and Commissioner of InlandRevenue v Chesterfields Preschools Ltd. The policy reasons behindthis principle are set out at [34] of Chesterfields. Briefly stated, therule ensures that proper consideration is given to the validity ofproceedings, decreases the likelihood that appellants will requireindulgences in the rules of procedure, and ensures that those whoappear before the Court are cognisant of the duties and responsibilitiesthat are owed to the Court.[8] The Court has a discretion to allow non-lawyers to appear onbehalf of companies where appropriate. As Cooke J stated:In general and without attempting to work out hard-and-fast rules,discretionary audience should be regarded, in my opinion, as areserve or occasional expedient, for use primarily in emergencysituations when counsel is not available or in straightforwardmatters where the assistance of counsel is not needed by the Courtor where it would be unduly technical or burdensome to insist oncounsel. Especially in minor matters, cost-saving could also be arelevant factor. A "one-man" company might be allowed to berepresented by its owner if the Judge saw fit in a particular case. Butit could not be right, for instance, to issue some sort of tacitcontinuing or general licence to an unqualified agent to appear inwinding up or any other class of proceedings.[Citations omitted].[27] In a recent decision dismissing an application for leave to appeal, theSupreme Court in New Zealand Cards Ltd v Ramsay reaffirmed the generalrule that companies are to be represented in the High Court by counsel ratherthan an officer of the company.4 The Supreme Court noted that, while theCourts are prepared to make exceptions to the general rule from time to time,the Court of Appeal in the case before it had taken the view that New ZealandCards should be represented by counsel, and the Court of Appeal was entitledto make that direction.[10] I also referred in AAM Ltd to a recent judgment of Jagose J in Oceanic PalmsLtd v KiwiRail Ltd, where the learned Judge said:5[23] It is a well-established rule a company has no right to be representedin Court by other than a practising lawyer. The benefits of securing limitedliability carry with them a range of obligations, of which the requirement toobtain legal representation in Court proceedings is one. The rule's rationale isto ensure proceedings are appropriately pleaded and managed, including bycounsel with primary obligations to this Court. That is in part to ensure thecompany's and shareholders' interests are properly represented in any decisionto participate in litigation.4 New Zealand Cards Ltd v Ramsay [2015] NZSC 45 at [4].5 Oceanic Palms Ltd v KiwiRail Ltd NZHC 679, [23]-[24].[24] The Court retains discretion nonetheless to allow non-lawyers toappear on behalf of companies in exceptional circumstances.6 But thoseexceptional circumstances are generally to be regarded:7 as a reserve or occasional expedient, for use primarily in emergencysituations when counsel is not available or in straightforward matters wherethe assistance of counsel is not needed by the court or where it would beunduly technical or burdensome to insist on counsel.[11] There is no evidence here of exceptional circumstances which might havejustified Mr Sharma filing the setting aside application himself. On the face of it, hehad the full 10 working days to take legal advice and ensure that Alpha's documentswere properly filed by a solicitor instructed on its behalf. This was not an emergencysituation, such as might have arisen, for example, if the sole director of the companywas ill and unable to seek legal advice in time to get a setting aside application filedby a lawyer.[12] Nor would admitting the application on any other basis be appropriate underany exception to the Re G J Mannix Ltd rule, for example as an "occasional expedient".If Mr Sharma's application and affidavit in this case were accepted it could veryquickly become the norm for directors of companies to file applications of this sort.[13] The same considerations apply in respect of Mr Sahu Khan's right of audiencein this Court. He is not a currently practising barrister and solicitor, and in my viewhad no right to appear as Alpha's "delegate" at the hearing of 16 November 2018, oras a director of Alpha at today's hearing.[14] Section 130 of the Act does not in my view affect at all the principles of legalrepresentation in this Court discussed in Re G J Mannix Ltd and the cases that havefollowed it. Section 130 is broadly concerned with the power of a board of a companyto delegate, but a board may only delegate "powers" under s 130 that it already holds.As the authorities referred to above show, a company has no power to file documentsin this Court or be represented in this Court, otherwise than by a practising barristeror solicitor, except in the very limited range of circumstances described in the cases.6 Re G J Mannix Ltd, above n 3, at 311. See also Commissioner of Inland Revenue v ChesterfieldsPreschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [25]-[34]; Kai Iwi Tavern Ltd vNew Zealand Guardian Trust Company Ltd [2013] NZCA 199 at [6]-[8]; and Dreamtech Designs& Productions Pty Ltd v Clownfish Entertainment Ltd [2015] NZCA 491 at [8]-[10].7 Re G J Mannix, above n 3, at 314.Those circumstances do not in my view apply in this case, and the result is that thepurported application to set aside the statutory demand was invalid and should be setaside. I make an order accordingly.[15] Mr Sahu Khan made submissions to me on the Court's discretion to allowexceptions to the G J Mannix Ltd rule in particular cases. He referred to a number ofpassages from the decision of the Court of Appeal in Re G J Mannix Ltd, relyingprimarily on his long experience as a lawyer. He submitted that this is not a case wherethe conduct of the litigation has been left in the conduct of a lay person, withinsufficient knowledge of the relevant law and procedure to properly represent thecompany.[16] But that could not affect the validity or otherwise of the filing of the settingaside application, which was done by a lay person without any apparent involvementby Mr Sahu Khan. Equally, Mr Sahu Khan's submission would appear to open thedoor to any retired or other non-practising barrister having a right of audience beforethis Court on behalf of a company. I do not consider that is what the authoritiesintended, and I accept Mr Van der Merwe's submission that the Court's discretion topermit a person who is not a practising lawyer to represent a company before thisCourt is normally reserved for cases of urgency, or for routine matters where a lawyer'sinvolvement might be regarded as unnecessary. In my view, this is not such a case.[17] The striking out of Alpha's originating application means that theCommissioner has also succeeded on the substantive application itself. In thosecircumstances, the Commissioner is entitled to costs. In the particular circumstancesof this case, it may be that an award of indemnity or above scale costs will beappropriate. The Commissioner may file and serve a memorandum on costs within10 working days. Any memorandum in response is to be filed and served on Alpha'sbehalf, by a currently practising barrister or solicitor, within 10 working days ofservice of the Commissioner's costs memorandum.[18] In light of my finding that the purported application for a setting aside orderwas a nullity, and is struck out, there is no need for me to consider the other issuesraised by the parties, including the Commissioner's submission that the amountclaimed could not in any event have been challenged having regard to the provisionsof s 109 of the Tax Administration Act 1994.[19] I do not think this is a case where an order putting Alpha into liquidationimmediately should be made under s 291 of the Act. In her affidavit for theCommissioner, Ms Richardson said that "It would be just and equitable for the demandto remain in place and that the company be placed into liquidation, should it fail tocomply with the demand." In those circumstances, Alpha might not have appreciatedthat it was at risk of a liquidation order being made today. For that reason, I do notthink it would be fair to make one. However, the debt should be paid immediately,and to that end, I make an order under s 291(1)(a) of the Act that Alpha is to pay thesum of $10,804.89 to the Commissioner by not later than 6 March 2019, failing whichthe Commissioner may make an application to put Alpha into liquidation.[20] Finally, there may be some concern over the fact that Mr Sahu Khan appearedat the hearing before Associate Judge Andrew at a time when he was apparentlysuspended from practice. I have put that issue to Mr Sahu Khan this morning, and hisresponse was that he was not appearing then as counsel (indeed, he told me today thathe surrendered his practising certificate some three months ago), but as a delegate ofthe company under s 130 of the Act. I do not regard the s 130 submission as havingany merit, and it seems to me that there may be a danger of suspended practitionerscontinuing to effectively practise (representing companies) while they are in factsuspended as barristers or solicitors. I am not aware of the terms of Mr Sahu Khan'ssuspension from practice, but I do consider that the circumstances are such that a copyof this judgment should be referred to the President of the New Zealand Law Society.I direct the Registrar to provide a copy to the President accordingly.Associate Judge Smith