ANDREW MILAN ILICH V COMMISSIONER OF INLAND REVENUE HC AK CIV 2009-404-00891

ANDREW MILAN ILICH V COMMISSIONER OF INLAND REVENUE HC AK CIV 2009-404-00891 24 June 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-00891BETWEEN ANDREW MILAN ILICH Appellant AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 18 June 2009 Appearances: Appellant in person T Molloy for the respondent Judgment: 24 June 2009JUDGMENT OF STEVENS JThis judgment was delivered by me on Wednesday, 24 June 2009 at 11am pursuant to r 11.5 of the High Court Rules. Registrar/Deputy RegistrarSolicitors/Counsel: Crown Solicitor, PO Box 2213, Shortland Street, Auckland 1140 Copy to: A Ilich, PO Box 151, Pokeno 2440Introduction[1] This is an application by Mr Andrew Ilich, the appellant, under r 20.4 of the High Court Rules for special leave to appeal out of time against a reserved decision of Judge Hole in the District Court at Auckland. On 5 April 2005, Judge Hole entered judgment against the appellant for $350,252.41 for unpaid goods and services tax (GST), income tax and PAYE. The time for appealing the decision ran until 6 May 2005. The appellant did not file and serve his notice of appeal until 23 July 2008, some 38 months after the specified appeal period. [2] The appellant's grounds of appeal are that the Judge made a number of factual errors, that there is new evidence available and that the Judge erred in the exercise of his discretion under r 11(2) of the District Court Rules 1992 in granting the Commissioner of Inland Revenue (the respondent) leave to file an amended statement of claim. [3] The respondent opposed the granting of special leave to bring this appeal out of time on the grounds that the appellant failed adequately to explain the delay in bringing the appeal and that the appeal was without merit.Background facts[4] In the period 1992-2000, the respondent issued assessments against the appellant for unpaid GST, income tax and PAYE. The assessments were based on returns filed by the appellant. [5] In March 1999, the respondent audited the appellant's income tax return and GST return for the period ended 31 March 1997. As a result, the respondent assessed the appellant for income tax of $153,620.56 and for GST of $18,464.41 for that period. [6] The appellant disputed these amounts, which resulted in a meeting between the respondent and the appellant on 23 May 2000. At this meeting, the appellantsigned an agreed adjustment. The appellant agreed to pay 50% of the assessments for income tax and GST for the period ended 31 March 1997. [7] On 11 June 2002, the respondent obtained judgment against the appellant for $361,269.47 for the assessed amounts of tax. At the hearing, counsel for the appellant, Mr LaHatte consented to judgment being entered against the appellant for the sums assessed. [8] The appellant filed an application for rehearing of the underlying judgment against him in the District Court. On 16 August 2004, Judge Perkins granted a rehearing on the basis that there may have been a miscarriage of justice in the obtaining of the judgment against the appellant. [9] The rehearing was heard before Judge Hole between 15-17 March 2005. Judge Hole entered judgment against the appellant in the sum of $350,252.41 for unpaid GST, PAYE and income tax. This is the judgment that is the subject of the current application.District Court decision[10] At the District Court hearing, the respondent advanced five causes of action: a) A claim for $97,860.48 for GST for periods ended 31 March 1996 and 31 July 1996; b) A claim for $68,884.85 for income tax for periods ended 31 March 1992, 31 March 1994, 31 March 1995, 31 March 1996, 31 March 1998, 31 March 1999, 31 March 2000 and 31 March 2001; c) A claim for $63,357.83 for PAYE periods ended 31 October 1996, 30 April 1997 and 31 May 1997;d) A claim for $23,785.96 for GST for period ended 31 March 1997. This amount was the subject of the agreed adjustment between the respondent and the appellant; and e) A claim for $96,363.29 for income tax for period ended 31 March 1997. This amount was also the subject of the agreed adjustment. [11] The appellant raised three defences, although two were not pleaded: a) That the agreed adjustment was entered into under duress; b) That the agreed adjustment was intended to satisfy all the tax obligations of the appellant in full, and that it did not simply relate to income tax and GST for the year ended 31 March 1997; and c) That the respondent failed to allocate monies paid by the appellant's company, Ilich Plumbing Ltd, in accordance with the appellant's directions, which were alleged to be that 50% of payments were to be allocated against the appellant's personal tax arrears. [12] Judge Hole rejected the argument that the agreed adjustment was entered into under duress:[24] His real complaint, in my opinion, is not that the agreed adjustment was entered into under duress, but rather, in hindsight, he thinks he could have done better. That conclusion is confirmed by his statement: "In hindsight, if I had said 15 percent, he was that anxious to tie it up he would have accepted 15 percent".[25] I conclude that the agreed adjustment should not be set aside as having been obtained under duress.[13] Judge Hole also rejected the argument that the agreed adjustment was intended to satisfy all taxation obligations of the appellant:[28] If one looks at the document itself, it is clear that the documents as originally presented to the defendant related only to the matters which were the subject of the audit. I consider that the defendant recognised this when he referred in the notation which he wrote, which was intended to effect the settlement, to the words "this dispute and taxation audit".[14] Finally, the last defence was found not to have been established:[32] In support of this defence, the defendant says that he gave Mr Cooper instructions that 50 percent of the payments was to be allocated against his personal liabilities. As indicated previously, Mr Cooper denies this. Further, Mr Cooper pointed out that he knew the company was trying to remain in business and that, to do so, it needed to satisfy its taxation obligations to the plaintiff. He regarded this as the primary objective in the circumstances [35] The burden of proof in supporting this affirmative defence lies on the defendant. The standard of proof is on the balance of probabilities. It was for the defendant to substantiate his allegation that he had verbally instructed Mr Cooper to allocate 50 percent of the payments against his personal taxation obligations. The defendant has adduced insufficient evidence to satisfy me that he did give the oral instruction to Mr Cooper. Accordingly, this defence, also, fails.[15] Judgment was entered for the respondent in the amounts set out at [10] above.The applicable rule[16] Rule 20.4 of the High Court Rules provides:20.4 Time for appeal if there is right of appeal(1) This rule applies if a party has a right of appeal to the court. (2) An appeal must be brought— (a) within the specified period if the enactment that confers the right of appeal specifies a period within which the appeal must be brought; or (b) in every other case, within 20 working days after the decision appealed against is given. (3) By special leave, the court may extend the time prescribed for appealing if the enactment that confers the right of appeal— (a) permits the extension; or (b) does not limit the time prescribed for bringing the appeal. (4) An application for an extension— (a) must be made by an interlocutory application on notice to every other party affected by the appeal; and (b) may be made before or after the expiry of the time for appealing.[17] Under the old High Court Rules, r 704 made provision for the time for appeal where a party has a right of appeal to the High Court. A 20 working day period also applied, where the enactment conferring the right of appeal specified no time for appeal. The power to extend time by special leave was couched in the same terms as r 20.4(3).Applicable principles[18] The appellant has a general right of appeal against the judgment under s 72 of the District Court Act 1947. However, r 704 (the predecessor of r 20.4) required that the appellant bring an appeal within 20 working days of the date the judgment is given. As the appellant did not comply with this timeframe, it is necessary to consider the principles relating to whether special leave should be granted to appeal out of time. [19] Under r 20.4, the onus is on the intended appellant to explain the delay in relation to not bringing the appeal within time. In Christchurch City Council v McVicar HC CHCH CIV 2004-485-000925 20 May 2004, Panckhurst J stated:[9] Against that background I turn then to the merits of the leave application. As I noted the section under the Act does not prescribe the requisite test, but in my view the jurisprudence in this area is well-settled and is to be conveniently found in the case summarised with reference to r704(3). The test is whether a grant of leave is appropriate in the interests of justice. The starting-point is that an intending appellant, in seeking leave, is asking an indulgence of the court. There is, therefore, an onus upon the intending appellant to explain the delay in relation to not brining the appeal within time in the first place. But even when adequate explanation is given, it is still a question of balancing the competing interests before a determination can be reached as to whether leave should be granted or not.[20] A proper explanation should be provided on affidavit as to the circumstances surrounding the failure to appeal in time: McGechan on Procedure (1988) at HR20.4.02. [21] In Stedmances v Stedmances [1987] 2 NZLR 336, the Court of Appeal held that the factors to be considered are as follows (at 340):The governing consideration is the requirements of the justice of the case. The reasons for failing to bring the appeal within time, prejudice which may have been incurred by the other party, subsequent events, and the merits of the intended appeal are important considerations.[22] In Hillary v Todd [2008] NZCA 103, the Court of Appeal dismissed an application for special leave to appeal that was six months out of time. The appellant had offered no adequate explanation. It is to be noted that the Court did not consider the appeal to be hopeless. The Court stated:[13] We are unable to form a view about the merits of the appeal, but we have considerable doubts about the strength of the grounds of the proposed appeal based on the information currently before us. Nevertheless, we will proceed on the basis that the proposed appeal is not hopeless. [14] Even on that assumption, however, we believe it is inappropriate to grant leave in the present case, in view of the six month delay in seeking special leave, with no adequate explanation. As was noted by this Court inAvery v No2 Public Service Appeal Board [1973] 2 NZLR 86 at 91, the late filing of an appeal converts the position of an appellant from that of exercising a right to appeal to that of seeking an indulgence from the Court. In the case of a delay of this magnitude, we do not believe it is appropriate to grant that indulgence. This Court took a similar approach in Belling v Belling (1996) 9 PRNZ 469 and Williams v Allott (2001) 15 PRNZ 684.[23] In Belling v Belling (1996) 9 PRNZ 469 (CA), the appellant filed a notice of appeal seven and a half months out of time. The appellant explained that he was unaware of the requirement to bring an appeal within 20 working days of the date of the decision. The Court dismissed the appeal, as it was hopelessly out of time. The Court stated that the fact that the appellant was unaware of the requirement to appeal within the specified period cannot be regarded as an acceptable excuse for the delay. [24] Other examples of cases involving a delay in the filing of the appeal includeLangridge v Wilson (1989) 3 PRNZ 341 (CA) where a delay of six weeks proved fatal and NZ Meat Processors IUOW v Registrar of Industrial Unions HC CHCH A839/82 28 April 1987, where a delay of four months was also fatal. In Dolamore v Accident Compensation Corporation HC WN CIV 2007-485-1157 30 July 2008, Gendall J refused special leave after a delay of nine years.Appellant's submissions[25] The appellant submitted two reasons for the delay in bringing the appeal. First, that he had not been in a physical, mental or financial state to file this appeal and could not afford legal representation. The second reason is that his counsel, Mr LaHatte left New Zealand shortly after the hearing and the appellant was unable to instruct new counsel. [26] The appellant also claimed that he called the Auckland District Court for advice on how to bring this appeal and that he received misleading advice from the Registry. This ground was not substantiated on the evidence and is disregarded. [27] The appellant also referred to the fact that the present notice of appeal was misplaced by the High Court for some time. Although unfortunate, this point has no bearing upon the determination of this application. [28] In relation to the intended appeal, the appellant relied on a number of alleged factual errors made by Judge Hole. The appellant also submitted that Judge Hole erred when, in the exercise of his discretion, he granted the respondent leave under r 11(2) of the District Court Rules 1993 to file an amended statement of claim on 16 March 2005. The appellant also submitted that there is new evidence available that was unavailable at the date of the hearing. The new evidence related to matters discussed at a meeting that the appellant had with an employee of the respondent. [29] In an affidavit sworn on 16 June 2009, the appellant raised three further factors as follows. First, he stated:There have been several reasons for the delay in bringing this matter to Appeal out of time, being financial hardship creating difficulty in locating counsel to represent the defendant over the past year, both personal and family health problems, a family bereavement, and delays in locating the crucial evidential documentation which was unavailable prior to January 2009, due to inaccessibility of leased premises due to non payment.[30] Further, the appellant raised for the first time the suggestion that Judge Hole ought to have recused himself:The most serious procedural issue, which should have been addressed from the onset of the hearing, was that Judge JD Hole should have disqualified himself to facilitate this judgement hearing due to his direct involvement in presiding over another Judgment Case which the defendant had brought against him in the case of King and Associates v Auckland Trade Training Academy Limited.[31] Then it was suggested that fresh evidence was now available:Due to compelling new evidence, not available until early this year, a key witness of the Plaintiff, Mr Gibson, has been totally discredited, as evidenced in the document annexedwhere Gibson, while acting for the defendant during period covering the 'agreed adjustment dispute', was very well aware of the defendants financial situation and has not disclosed the truth to the court, as can be proven by this document which clearly shows he personally signed a letter addressed to the defendants bank outlining income information and projections regarding the defendant affairs and it is clear it was not possible for the defendant to have made a $140k profit for that period Mr Earle Gibson was not a credible witness, due to his previous actions where he himself was the subject of a professional complaint by legal professional – Mr Wayne Thompson – Solicitor, of Mt Eden, who on numerous occasions wrote to Mr Gibson and his company, complaining of his financial management of the defendants affairs.[32] In summary, the appellant contended:I have major objections with, and protest profusely, to the judicial process through the New Zealand Justice System which I have experience during my defence, where I have been denied a fair hearing in the correct forum, over a prolonged period of 12 years causing very serious stress and anxiety problems which the period in its self equates to four bankruptcy terms.Respondent's submissions[33] The respondent submitted that the appellant had failed to provide an adequate explanation for the three year delay in bringing the intended appeal. Further, the appellant's explanations, apart from the matters addressed in the recent affidavit, were not on oath. [34] So far as the hardship ground is concerned, Mr Molloy for the respondent submitted that the evidence in support was sparse and not backed up bydocumentation or independent evidence. Further, the material cited at [29] above related to recent times and not the relevant period of the delay. [35] On the recusal point, Mr Molloy observed that the facts relied upon were unclear. Even if the case mentioned had been heard before the hearing on 15-17 March 2005, the appellant said he had told his lawyer Mr LaHatte about it and no application for recusal had been made. Had an application been made, it is unlikely that it would have been granted: see Muir v The Commissioner of Inland Revenue[2007] 3 NZLR 495 (CA) at [98]. [36] As to the new evidence, Mr Molloy submitted it was difficult to see that it had any material relevance to the issues that Judge Hole had to decide. [37] The respondent submitted that, if it is accepted that the appellant's counsel went overseas shortly after the hearing, it is inconceivable that the appellant has been unable to instruct counsel to act for him in the three years since the judgment. The respondent also noted that the appellant has had ample opportunity to obtain advice on legal aid to bring an appeal. The respondent also stated that there is no evidence that the appellant received misleading advice from the District Court Registry. [38] The respondent further submitted that the intended appeal is wholly without merit. The respondent submitted that it was difficult to follow the factual errors alleged in Judge Hole's decision by the appellant. In summary, the lack of merit is demonstrated by the factors addressed in the amended notice of opposition:(a) Judge Hole had jurisdiction under r 11(2) District Court Rules 1992 to grant leave to the respondent to file an amended statement of claim. The amendment was neither a breach of process, nor of timeframes, and did not prejudice the Applicant's case. (b) The Applicant is not entitled to rely upon an alleged GST credit from the sale of a business as a set-off against the assessments against him for GST, Income Tax, or PAYE: r 169 District Court Rules, and r 146 High Court Rules. (c) No disciplinary action has been taken against employees of the Respondent in relation to the agreed adjustment, nor has the Applicant produced any evidence to support this assertion.(d) The Applicant was not denied access to legal counsel at the "agreed adjustment" meeting, nor has the Applicant produced any evidence to support this assertion. (e) The Applicant failed to challenge tax assessments for GST, Income Tax and PAYE within the periods specified by the Tax Administration Act 1994 ("TAA"), and cannot now challenge those assessments. The assessments are deemed to be correct and indisputable: s 109, TAA. (f) The Taxation Review Authority has no jurisdiction to set aside the agreed adjustment (or to consider allegations that payments were incorrectly credited to the taxation liabilities of a company, rather than the Applicant) as was determined by Judge Willy in Ilich v Commissioner of Inland Revenue, 14 March 2004, TRA, 020/2004. (g) Allegations of duress, undue influence and abuse of process, relating to the agreed adjustment, were properly considered and dismissed by Judge Hole in his decision of 5 April 2005, as was an allegation that the agreed adjustment was in full and final settlement of the Applicant's tax liabilities. The Applicant has not identified any error of fact or law that would support an appeal against those findings. (h) No new relevant evidence is available that was unavailable at the time of the hearing, nor has the Applicant identified any material factual errors in the decision of Judge Hole.[39] The respondent submitted in particular that Judge Hole was correct to grant leave to the respondent to file an amended statement of claim. This is because the appellant at the hearing raised two defences that had not been pleaded. The respondent then applied to file an amended statement of claim to respond to the unpleaded defences. The respondent submitted that it is only appropriate for the Court to interfere with the discretion to grant leave to file an amended statement of claim where it has been exercised on a wrong principle or there has been a miscarriage of justice. The respondent submitted that the appellant has not identified any basis upon which the discretion was exercised on a wrong principle or that there was a miscarriage of justice.Discussion[40] This application is to be determined under r 20.4 of the High Court Rules. The first requirement is that the party has a right of appeal to this Court: r 20.4(1). This requirement is satisfied as the appellant has a right of appeal to the High Court under s 72 of the District Courts 1947. However, r 20.4(2) requires that the appealmust be brought within the specified period if the enactment that confers the right of appeal specifies a period within which the appeal must be brought or alternatively, within 20 working days after the decision appealed against is given. In this case, the District Courts Act 1947 does not specify a period within which the appeal must be brought. Thus, the appeal must be brought within 20 working days after the decision appealed against was given. Judge Hole delivered his decision on 5 April 2005. The appellant had until 6 May 2005 to file and serve a notice of appeal against the judgment, but did not do so until 23 July 2008. Therefore this application is outside of the time period prescribed by r 20.4(2) by more than three years. By any assessment, the delay is significant. [41] The Court may extend the time prescribed for appealing if the enactment that confers the right of appeal permits the extension or does not limit the time prescribed for bringing the appeal: r 20.4(3). The District Courts Act 1947 does not permit the extension, but does not limit the time prescribed for bringing the appeal. Thus, the Court has power to grant special leave to appeal under r 20.4(3). [42] The principles relating to the exercise of the discretion under r 20.4 are well settled. The onus is on the appellant to explain the delay in not bringing the appeal within the prescribed time limit. The appellant is seeking an indulgence. InStedmances, the Court of Appeal emphasised that the governing consideration is the justice of the case. The Court of Appeal considered that the reasons for failing to bring the appeal within time, the prejudice that may have been incurred by the other party, subsequent events and the merits of the intended appeal are important considerations in deciding whether to grant leave. [43] In discharging the onus to explain the delay, the appellant will be required to present evidence by way of affidavit. The greater the delay that requires explanation, the greater will be the need for clarity and specificity in the evidence advanced by way of justification.Merits issues[44] It is convenient to deal first with the merits of the intended appeal. I do not consider on the material before me that the appellant has established that Judge Hole made the alleged factual and other errors. Further, I am satisfied that the points referred to by the respondent in the amended notice of opposition are generally a complete answer to the concerns raised by the appellant. [45] I am not satisfied that Judge Hole erred, in the exercise of his discretion, when he granted the respondent leave under r 11(2) of the District Court Rules 1992 to file an amended statement of claim. The appellant has not shown that the discretion was exercised on a wrong principle or that there has been a miscarriage of justice. The appellant has simply stated that he "was afraid to challenge the Judge for allowing such an amendment". The respondent correctly noted that the appellant was represented by counsel at the hearing, who could have objected if it was appropriate. [46] With respect to the allegedly new evidence, it is fair to say that it is somewhat difficult on the limited factual information available to reach a categorical view on the impact of the alleged new evidence. On an impressionistic basis, I have real doubt that, even if the new evidence were admissible as fresh evidence, it would have made any difference at all. The strength of this material is dubious to say the least. Nevertheless, I am prepared for the sake of analysis, to assume as did the Court of Appeal in Hillary that the proposed appeal is not totally meritless.Other reasons for delay[47] The appellant has submitted two main reasons for the delay. The first reason is that he was not in a physical, mental or financial state to file and progress the appeal. The second reason is that the appellant states that he was unable to instruct counsel to act for him. [48] The reasons submitted by the appellant relating to personal and family hardship do not provide adequate explanation for the delay in bringing the appeal outof time. The appellant has not provided the necessary detailed evidence of his physical, mental or financial state at the relevant time, namely between May 2005 and July 2008. Further, the required information was not presented by way of sworn affidavit. There is no doubt that, in order to obtain leave to appeal out of time, a full and proper explanation on affidavit of all the surrounding circumstances is required. Here, there is none. [49] So far as the recent affidavit evidence is concerned, the alleged personal, family and health problems only relate to a period "over the past year". This is not the relevant period. [50] There is nothing in the recusal point. Even if the appellant's counsel had made an application that Judge Hole recuse himself, there is no proper basis for it to have been granted. A recusal on the ground of judicial bias is rare. [51] I accept that the appellant's counsel, Mr LaHatte may have left New Zealand shortly after the hearing. However, I do not accept that the appellant was unable to instruct new counsel due to the quantity of work involved in the appeal and the low rates paid for legal aid. This situation is simply not credible. Finally, it is no answer for the appellant to say, as he did at the hearing, that the reason he took no steps for three years was because the respondent took no steps to enforce the judgment.Result[52] The appellant has completely failed to provide an adequate explanation for the delay in bringing the intended appeal. This is both in respect of the alleged physical, mental and financial difficulties and his inability to obtain legal advice. The intended appeal is most likely without merit. But this is not the determinative of the application. Here, the delay of 38 months was extreme in all the circumstances. It is not in the interests of justice to grant leave.[53] For the above reasons, the application for special leave to appeal out of time against the decision of Judge Hole dated 5 April 2005 is refused. _________________________ Stevens J