BRISTOL FORESTRY VENTURE LIMITED and BEN NEVIS FORESTRY VENTURES LIMITED v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2819

BRISTOL FORESTRY VENTURE LIMITED and BEN NEVIS FORESTRY VENTURES LIMITED v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2819 [25 October 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-2424[2013] NZHC 2819UNDER the Companies Act 1993IN THE MATTER of an application under s290 to set asidestatutory demandsBETWEEN BRISTOL FORESTRY VENTURELIMITED and BEN NEVIS FORESTRYVENTURES LIMITEDPlaintiffsAND COMMISSIONER OF INLANDREVENUEDefendantHearing: 24 October 2013Counsel: GJ Judd QC for plaintiffsR Roff and SJ Leslie for defendantJudgment: 25 October 2013JUDGMENT OF ASSOCIATE JUDGE FAIRE[on applications extending time and for stay]This judgment was delivered by me on 25 October 2013 at 3pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Wynyard Wood, AucklandCrown Law, WellingtonThe application[1] The plaintiffs apply for orders:(a) Extending the time specified in [59] of my judgment dated 12 September 2013 until 10 working days after the Court of Appeal has delivered its decision on the appeal against that judgment; or alternatively(b) Staying the orders specified in [59] of my judgment pending the hearing and determination of the appeal.[2] The application made in relation to the extension of time is sought pursuant to r 1.19 of the High Court Rules. In relation to the alternative order sought, the application is made in reliance on r 12.3 of the Court of Appeal (Civil) Rules 2005.The judgment[3] In my judgment of 12 September 2013, I declined the plaintiffs' application to set aside statutory demands served on the plaintiff companies. I ordered that the plaintiffs pay the sums claimed in the respective statutory demands. I further ordered that, if they failed to make the required payments within 10 working days of the judgment, the defendant may make an application to put the companies into liquidation.The plaintiffs' appeal[4] The plaintiffs have filed an appeal against my judgment.[5] Mr Judd summarised the grounds advanced in support of the appeal. In summary, those grounds are as follows:(a) There has been no final determination of liability for the tax which is the subject of the demands. That is because challenges to theCommissioner's assessment have not been finally determined becausethere is an outstanding application to set aside the hearing authoritydetermination, being the judgment of Venning J. The tax is not due until the thirtieth day after the challenge to the assessment is finally determined. Liability to pay arises by statute and not by virtue of a court judgment; and(b) The Commissioner is not a creditor. The Crown is the creditor by the operation of s 156 of the Tax Administration Act 1994, which authorises the Commissioner to recover unpaid taxes on behalf of theCrown by suit, in the Commissioner's official name. The plaintiffs'submission is that the Commissioner has no authority to act under the Companies Act if she does not have a judgment. This was not an argument advanced before me, but counsel now says will be advanced in the Court of Appeal.Reason for application[6] Mr Judd submitted that if the Court of Appeal determined that the assessed shortfall penalties and interest are not currently due, then the orders I made and, in particular the defendant's entitlement to make application to put the companies intoliquidation on the grounds that they are unable to pay their debts, will fall away. If a stay is refused, he submitted, the companies may well be the subject of an application to be placed into liquidation with a liquidator appointed with the result that it would be too late to return the plaintiffs to the position they were in prior to the appointment of any liquidator.[7] Mr Judd's concern is overstated. The effect of my judgment is that before thecompanies can be put into liquidation an application must be made to the High Court pursuant to Part 16 and, in particular, s 241 of the Companies Act 1993 and in compliance with Part 31 of the High Court Rules to place the companies into liquidation and to appoint a liquidator. The party applying must satisfy one of the grounds set out in s 241 of the Companies Act 1993 before an order can be made. The application must be served on the companies, which clearly receives notice ofthe date of hearing for the application.1 The application must be advertised.2Advertising is subject to restrictions which protect the notice to the defendant companies of the pending application.3 Provision is made for the stay of such proceeding on application being made.4 The statutory demand process, which is at the centre of the application which I considered in my judgment, has as its purpose the establishment of a presumption that the companies are unable to pay their debts.5This is one of the grounds that may be relied upon to place a company into liquidation and appoint a liquidator.[8] At the hearing of the application to appoint a liquidator the law is as stated in Billie J Little (ed) Brookers Company and Securities Law (looseleaf ed, Brookers) at [CA298.02]:The Courts have always had a discretion as to whether the company should be put into liquidation. This is so even in relation to a company that was deemed to be unable to pay its debts. Where a company has failed to comply with a statutory demand and the liquidation application follows, it is (and has always been the case) that the Court's jurisdiction to refuse a liquidation can be invoked on it being shown that the company is truly solvent and that it isprepared to pay the applicant's debts.6[9] It follows that my judgment does not finally determine the fate of the plaintiff companies.Background[10] I need not repeat the background that is set out in my judgment.The plaintiff companies' financial position[11] Counsel for the plaintiffs confirmed:1 HCR 31.12.1 HCR 31.9.2 HCR 31.10.3 HCR 31.10.4 HCR 31.11.5 Companies Act 1993, s 287.6 Orleans Marketing Co Pty Ltd v Neydharting Moor (Aust) Pty Ltd (1985) 3 ACLC 147 (at p 154); All Flors Ltd V Radio NZ Ltd 19/5/95, CA230/94 (at p 3); Mico Wakefield Ltd v Harbour Capital Building & Maintenance Services [1993] Ltd 25/7/96, Master Thomson, HC Wellington M159/96 (at p 3).(a) That the companies are not able, from their own resources, to make the payment sought in each statutory demand; and(b) The companies' shareholders do not intend to advance sufficient fundsto the companies to allow them to pay the sums demanded.The first order sought - the extension of time fixed in my judgment to pay the sum demanded[12] Mr Judd's concern is expressed in his written submissions as follows:The only way in which the companies' position can be reserved from beingsubject to the order is for time to be extended. Whilst a stay under r 12 of the Court of Appeal Rules could prevent the Commissioner from applying for liquidation, it cannot prevent the rule appealed against taking effect (as it has, unless time is extended under r 1.19(2)).[13] Mr Judd's submission overlooks the fact that prior to my hearing the application to set aside the statutory demand, the matter was considered by Associate Judge Bell as is customary in these cases. Associate Judge Bell made an order on 31 May 2013 as follows:I make an order under s 290(3) of the Companies Act 1993 extending the time for compliance with the statutory demands until a decision is given on the application under s 290 to set aside the statutory demands.His Honour then went on to give directions to have the file in proper form for a defended hearing on the application.[14] It follows that if my judgment is stayed pending the hearing of the appeal, the order made by Associate Judge Bell applies and time is extended by his order without the need for the possible and questionable intervention of r 1.19(2) to this situation. For that reason, I consider whether this is an appropriate case for a stay.The court's approach to a stay application[15] The application is made in reliance on r 12 of the Court of Appeal (Civil) Rules 2005. Of particular significance are subrules 3 and 4 which provide:(3) Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or(b) grant any interim relief.(4) An order or a grant under subclause (3) may—(a) relate to execution of the whole or part of the decision or to a particular form of execution:(b) be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.[16] I am required to balance two principles. First, a successful litigant should not be deprived of the fruits of his or her litigation. Secondly, an appellant should not be deprived of the fruits of a successful appeal: Duncan v Osborne Building Ltd.7[17] However, in balancing the two principles, the courts have considered a number of matters. They include:8a) Whether, if no stay is granted, the appellant's right of appeal will be rendered nugatory;b) Whether the successful party will be injuriously affected by the stay;c) The bona fides of the applicants as to the prosecution of the appeal;d) The effect on third parties;e) The novelty and importance of questions involved;f) The public interest in the proceeding;7 Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 (CA) at 87.8 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9], Videbeck v Auckland City Council HC Auckland M 1053-sw02, 21 October 2002 at [7]. The above factors were cited with approval by the Court of Appeal in Keung v GBR Investment Ltd[2010] NZCA 396, [2012] NZAR 17 at [11],.together with an additional factor, namely the apparent strength of the appeal.g) The overall balance of convenience and the status quo; andh) Whether the appellant has demonstrated a sufficiently arguable point to be considered on appeal.[18] I consider the matters referred to in [17].[19] For the reasons set out in [7], [8] and [9] of this judgment, the right of appeal will not be rendered nugatory by a refusal of a stay. The status of the plaintiffs will ultimately depend on whether an application to appoint a liquidator is filed and its outcome, and including the possibility of a stay under r 31.11. It is not dependent directly on the result announced in my judgment.[20] There is a risk that if a liquidation is the ultimate outcome any delay will prejudice remedies available to a liquidator and therefore the benefits that might accrue to creditors, including the defendant, the Commisioner. A clear example is the voidable transaction provisions of the Companies Act 1993.9 I refer particularlyto the definition of "restricted period" and "specified period" referred to in s 292 of the Companies Act 1993, all of which relates to the time of commencement of the liquidation. Accordingly, there is a risk of prejudice and injury to the defendant if the stay is granted.[21] Ms Leslie, in considering the bona fides of the appeal, submitted that this was yet a further example of the plaintiffs pursuing an appeal to delay further collection of tax that had been due since 2008. She referred to Property Ventures Investments Ltd v Commissioner of Inland Revenue.10 In that case, the Court of Appeal refused to grant a stay of liquidation proceedings in a tax case where the applicants for stayhad appealed against the High Court's refusal to accept a creditor's compromise.The Court doubted the bona fides of the appeal.[22] Ms Leslie set out a summary of the plaintiffs' litigation involving thedefendant long after the Supreme Court decision in 2008. She noted that it had resulted in three indemnity costs awards against the plaintiffs and numerous adverse9 Section 292 and following sections.10 Property Ventures Investments Ltd v Commissioner of Inland Revenue [2010] NZCA 217 at [13].judicial comments. I incorporate her written submissions in that respect which are as follows:19.1 The Court of Appeal, dismissing an appeal from a failed application to recall Venning J's 2004 judgment, held that "[t]he conclusions sofar reached mean that the recall application was rightly dismissed by Venning J. It is an application which was, in any event, far frommeritorious".19.2 Keane J found, in awarding indemnity costs in the failed judicial review that "Accent was launching a collateral attack on theassessments and decisions adverse to it and that was an abuse of process." The claim was [sic] "was wholly unmeritorious and self evidently so from the outset".19.3 McGrath J in the Supreme Court, in an action to declare Venning J's 2004 judgment a nullity found, that the taxpayers "cannot crediblyclaim that the litigation strategy attributed to the Commissionercompromised its ability to mount an argument".19.4 Woodhouse J held, awarding indemnity costs against the plaintiffs in an acting [sic] to debar Crown Law from acting, that he was"satisfied that the taxpayers have not brought this applicationbecause of a sincere and well-founded concern that their tax affairs will not be properly adjudicated on, but in an endeavour to cause unjustified difficulties for the Commissioner and to delay resolution of the tax disputes. The attempt to game the system, through the present applications, may be seen from the litigation history".19.5 Upholding Woodhouse J's judgment and awarding further indemnitycosts, the Court of Appeal held that it saw "this appeal as a further step in the 'gaming' referred to by Woodhouse J".19.6 Katz J held in the collateral proceeding on which the plaintiffs relythat it was "not even remotely arguable" that the High Court hadjurisdiction to entertain the proceeding.19.7 Goddard J held in a judicial review proceeding brought by theplaintiffs' shareholders against the Judicial Conduct Commissionerin relation to bias allegations against Venning J, which is also thesubject of the plaintiffs' present appeal against Katz J's judgmentand Bill of Rights Act proceedings, "I have no difficulty inconcluding that the complaints are in substance and effect a further attempt to impugn the decision in Accent Management v Commissioner of Inland Revenue and thus are a collateral attack on the judgment and an abuse of both the judicial complaints procedure and the High Court's supervisory jurisdiction". [Citations omitted][23] Ms Leslie noted that the plaintiffs continued to become further indebted to the defendant as interest accrued on the outstanding debt.[24] She submitted, and I consider correctly, that the public interest favours refusing the stay. She noted that there is a public interest in maintaining the integrityof the tax system, which includes the defendant's ability to collect taxes when theycome due. Further, she submitted, that there is a clear public interest in not allowing meritless litigation to consume public resources and delay the collection of tax that has been determined to be due after taxpayers have exhausted their challenge rights under Part 8A of the Tax Administration Act 1994. Once they have been completed, further challenges are barred by s 109 of the Tax Administration Act 1994.[25] In addition, she submitted that there is a public interest in ensuring that companies which are not paying their taxes and are, indeed, insolvent are wound up and that is particularly so where the tax debts have been confirmed by a decision of the Supreme Court.[26] When one considers the balance of convenience, it is clear that the plaintiffs have no intention of paying the debt, despite the Supreme Court judgment. They are not prepared to pay any security in any form pending the determination of their appeal. The balance of convenience clearly favours refusing a stay in this case.[27] The fact that there is a statutory right to recover interest at a low rate of 1.75 per cent of the moneys paid to the Commissioner is only one aspect. A stay might be granted on terms where the funds are held in an interest bearing trust account by the Registrar of this court or other appropriate person at a higher interest rate. That has never been advanced by these plaintiffs as a consideration, however.[28] Finally, I refer to the merits of the appeal.[29] I have already referred to the fact that the plaintiffs seeks to introduce a separate ground that was not argued before me. I am advised that no amended notice of appeal has been filed in the Court of Appeal to cover this point. I will deal with that new ground shortly.[30] I deal with the first ground of appeal, which I have summarised in [5](a). The debt, which is the subject of these demands, has arisen following the upholdingof decisions by the High Court, Court of Appeal and Supreme Court, which refusedto set aside the Commissioner's assessment. The debt was accordingly due on the thirtieth day following completion of the final appeal in relation to the challenge to the assessment. That, in my view, as I have recorded in my judgment discloses that the debt is due in this case.[31] The recent attack on the judgment of Venning J and the suggestion that it might be a nullity does not affect the current position, as I outlined in the judgment. The judgment stands and until set aside is valid, as are the judgments which later considered it. I do not consider that this ground of the appeal is soundly based.[32] The new ground sought to be introduced, namely that it is the Crown that is the creditor and not the Commissioner is indeed a novel argument. It is based on s 156 of the Tax Administration Act 1994. It is significant that that section does not require the Commissioner to obtain a judgment before seeking to enforce payment of the outstanding tax. The section authorises the Commissioner to recover tax on behalf of the Crown. It permits any judgment obtained to be obtained in the name of the Commissioner. I hesitate to express a final view on the issue. This was not argued before me in the first instance. Understandably, it was not argued fully before me on this application for a stay. The plaintiffs will need leave from the Court of Appeal to raise this further ground. In any event, I do not regard it as a significant factor in determining whether a stay should be granted in this case.[33] When I consider particularly the matters raised in [7], [8], [19], [20], [26] and [27] I reach the conclusion that a stay pending the appeal should not be granted in this case. I have already ruled that there is no point in considering an extension of time in relation to the orders made, because the outcome is exactly the same by dealing with the matter under a stay.[34] Accordingly, the plaintiffs' application is refused.Costs[35] I invited counsel to indicate whether I should simply apply Category 2 Band B on the basis that the party who succeeded was entitled to costs. Counsel forthe Commissioner invited me to reserve costs so that a memorandum could be submitted. In those circumstances, I order that costs be reserved. I invite counsel to confer with a view to agreeing. If they are unable to agree, memoranda in support, opposition and reply shall be filed and served at seven-day intervals._____________________JA FaireAssociate Judge