COMMERCIAL MANAGEMENT LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 891 [4 May 2020]

COMMERCIAL MANAGEMENT LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 891[4 May 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-2740[2020] NZHC 891IN THE MATTER of an appeal under s 370 of the Companies Act 1993BETWEEN COMMERCIAL MANAGEMENT LTDAppellantAND COMMISSIONER OF INLAND REVENUEIntervenerCIV-2019-404-2742IN THE MATTER of an appeal under s 370 of the Companies Act 1993BETWEEN EQUITY CAPITAL INVESTMENTS LTDAppellantAND COMMISSIONER OF INLAND REVENUEIntervenerHearing: 12 March 2020Counsel: A Beck for appellantsG S Caro and M Deligiannis for IntervenerJudgment: 4 May 2020JUDGMENT OF KATZ JThis judgment was delivered by me on 4 May 2020 at 4:00pm pursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarSolicitors: Douglas Burgess, AucklandCrown Law, WellingtonCounsel: A Beck, GreytownIntroduction[1] This is another chapter in the lengthy saga of litigation arising outof the "Russell template" tax avoidance arrangements devised by the lateJohn George Russell.[2] The appellants have both filed appeals against decisions of the Registrar ofCompanies declining to restore two companies to the companies register. Before theirappeals can be heard, however, two interlocutory applications must be determined,namely:(a) an application by the Registrar seeking to be struck out as a respondentto both appeals; and(b) an application by the Commissioner of Inland Revenue seeking leaveto intervene in both appeals.Background[3] The appellants, Commercial Management Ltd and Equity Capital InvestmentsLtd, were previously under the control of Mr Russell. They are now under the controlof one of his long-standing business associates.[4] Commercial Management was a shareholder of Marketing AgenciesLtd ("Marketing"), a company that was removed from the companies register on23 April 1998. Equity Capital was a shareholder of Mountforts Pharmacy Ltd("Mountforts"), a company that was removed from the companies register on22 December 2011. Marketing and Mountforts were both parties to a Russell templatetax avoidance scheme.1[5] In 2018, the appellants applied to the High Court for orders restoringMarketing and Mountforts to the companies register, on the "just and equitable"ground.2 The basis on which restoration was sought was that those companies had1 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019)29 NZTC 24-019 at [10].2 Companies Act 1993, s 329.potential historic GST claims against the Commissioner that they wished to pursue byway of challenge proceedings. The Commissioner unsuccessfully opposed restorationin the High Court, and the restoration applications were granted.3 The Registraraccordingly restored Marketing and Mountforts to the companies register. Bothcompanies then issued challenge proceedings against the Commissioner.[6] Meanwhile, the Commissioner appealed to the Court of Appeal. The Court ofAppeal held that the approach adopted in the High Court was wrong as a matter ofprinciple and allowed the appeals.4 It directed that:[75] The order that the removed companies be restored to the CompaniesRegister is set aside.[7] The Registrar then amended the companies register to show that Marketing andMountforts had not been restored.[8] The appellants then made a further application to the Registrar to have thecompanies restored (again), pursuant to s 328 of the Companies Act 1993. Thatsection provides, amongst other things, that the Registrar must, on the application ofa person who was a shareholder at the time of removal, restore a company to theregister if the Registrar is satisfied that at the time of its removal it was a party to legalproceedings. The appellants submitted that, because Marketing and Mountforts hadissued challenge proceedings against the Commissioner following the High Courtdecision, the Registrar was required to restore them to the register.[9] The Registrar rejected that submission and, in a decision dated 25 November2019, declined to restore Marketing and Mountforts to the register. That decision isthe subject of the present appeals. The Registrar's position, in essence, is that whenhe (or his delegate) implemented the Court of Appeal's decision by amending theregister to show that the companies had not been restored, he was not "removing" thecompanies from the register within the meaning of the Companies Act. Rather, the3 Commissioner of Inland Revenue v Commercial Management Ltd [2018] NZHC 2224,28 NZTC 23-068.4 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019)29 NZTC 24-019 at [72].(wrongful) restoration of the companies to the register was simply reversed, restoringthe status quo as it was prior to the High Court decision.[10] The key issue on appeal will likely be whether the steps taken by the Registrarto implement (or attempt to implement) the Court of Appeal's decision amounted tothe "removal" of Marketing and Mountforts, within the meaning of the CompaniesAct (including in particular s 328 of the Act).Should the Registrar have been named as a respondent to the appeals?[11] The Registrar has been named as the sole respondent to both appeals. He saysthat this was in breach of r 20.9(2) of the High Court Rules, and seeks an order strikinghim out as respondent.Legal framework[12] Rule 20.9(2) of the High Court Rules 2016 provides that:20.9 Contents of notice of appeal(2) The notice of appeal must not name the decision-maker as arespondent.[13] The principle that decision-makers should not "enter the fray"5 by becomingan active protagonist in appeals from their decisions is a longstanding one.6 InFonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd, aftercomprehensively reviewing the relevant case law, Miller J summarised the variouspolicy rationales for r 20.9(2) as follows:7[19] Several rationales for the principle that a decision-maker ought notbecome a protagonist in an appeal from its own decision emerge from the5 Engineers Union v Arbitration Court [1976] 2 NZLR 283 (CA) at 285-286.6 Engineers Union v Arbitration Court [1976] 2 NZLR 283 (CA) at 285-286; Licensing ControlCommission v Lion Breweries Limited (1983) 3 NZAR 468 (HC) at 472; Moonen v BroadcastingStandards Authority (1995) 8 PRNZ 335 (HC) at 337; Portage Licensing Trust v Auckland DistrictLicensing Agency [1997] NZAR 374, (1997) 10 PRNZ 554 (HC) at 556; In re Baise-Moi [2005]NZAR 214 (CA) at [52]; Secretary for Internal Affairs v Pub Charity [2013] NZCA 627, [2014]NZAR 177 at [27].7 Fonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd (2009) 19 PRNZ 824(HC). More recently, see Re The Foundation for Anti-Aging Research and the Foundation for theReversal of Solid-State Hypothermia [2016] NZHC 2328 (HC) at [46].authorities and the Rules: involvement in an appeal from its own decisionlends the decision-maker an appearance of partiality; in particular, it isdifficult to be and appear impartial in proceedings before the decision-makerthat may follow the appeal; alternatively, the decision-maker may be functusofficio, with no further role to play in the case; the decision-maker can provideappropriate assistance without being named; it is for the Court to decide whensuch assistance is appropriate, and the Rules confer a discretion not to hearfrom the decision-maker so long as it is not a party; and the decision-makermay be put to unnecessary expense if named.[14] It has also long been recognised, however, that in appropriate casesdecision-makers can provide valuable assistance to the Court, without formallybeing joined as a party.8 Hence, although decision-makers are not to be named asrespondents, they are generally entitled to be heard on appeals from their decisionspursuant to r 20.17, which provides:20.17 Decision-maker entitled to be heard on appealThe decision-maker is entitled to be represented and heard at the hearing ofan appeal on all matters arising in it, unless—(a) the decision-maker is a District Court; or(b) the court otherwise directs.[15] Further, pursuant to r 4.56, a decision-maker may be added as a respondent,notwithstanding the prohibition in r 20.9(2), if the court considers it to be necessary.Previous practice in relation to naming the Registrar as a respondent to appeals[16] Mr Beck, for the appellants, pointed out that the Registrar has been named asa respondent to a number of appeals in the past.9 Mr Beck also noted that a numberof other regulatory decision-makers regularly appear as respondents in appeals andargue in favour of their own decisions.108 Licensing Control Commission v Lion Breweries Limited (1983) 3 NZAR 468 (HC) at 472;Portage Licensing Trust v Auckland District Licensing Agency [1997] NZAR 374, (1997) 10PRNZ 554 (HC) at 556; Bleakley v Registrar of Friendly Societies and Credit Unions [2017]NZHC 471 at [20]-[23].9 See for example The Paint Factory v Registrar of Companies (2000) 15 PRNZ 42; Davidson vRegistrar of Companies [2011] 1 NZLR 542; Brand v Registrar of Companies [2016] NZHC2983; Jacomb v Registrar of Companies [2013] NZHC 2486 and Clarke v Registrar of Companies[2018] NZHC 1608.10 Mr Beck gave the following examples: Merta v New Zealand Transport Agency [2019] NZDC8826; Taranaki-Whanganui Conservation Board v Environmental Protection Authority [2018]NZHC 2217; Medero v Ministry of Social Development [2019] NZHC 2204.[17] Mr Caro, for the Registrar, acknowledged that the Registrar has been named asrespondent to appeals in the past, but noted that the Registrar has not always taken anactive role in such appeals, particularly where there is another respondent who cantake the contradictor role. Further, where the Registrar has participated, his role hasgenerally been to provide assistance to the Court, rather than to fully "enter the fray"as a protagonist. This is more consistent with the role envisaged by r 20.17(decision-maker entitled to be heard on appeal) than that of a true party.[18] Mr Caro explained that in recent times the Registrar has taken a more proactiveapproach and has objected to being named as a respondent to appeals, in breach ofr 20.9(2). Naming the Registrar as a respondent to appeals has resource implicationsfor the Registrar and exposes him to adverse costs awards. The Registrar's view isthat if his input would be of assistance to the Court, then the appropriate course is forhim to be represented and heard pursuant to r 20.17, or for him to be formally joinedas a respondent pursuant to r 4.56.[19] In most cases there would appear to be little or no advantage to an appellantin insisting that the Registrar to remain as a respondent, against his wishes(other than, possibly, an ability to seek costs in the event of a successful appeal).Indeed, this appears to be the first case in which a request or application by theRegistrar to be removed as a party has resulted in a fully contested hearing of the issue.The reason for that, at least in part, appears to be that the appellants anticipate that ifthe Registrar is removed as a respondent it will increase the likelihood of theCommissioner's application to intervene being granted.[20] I acknowledge that the Registrar has been named as a respondent in a numberof previous appeals, as have other decision-makers. However, the fact that theRegistrar did not object to being so named in those cases does not preclude him fromdoing so now. I will therefore consider the submissions made by the parties on thecorrect interpretation of r 20.9(2) on their merits.How should r 20.9(2) be interpreted?[21] The appellants submitted that the High Court Rules, as a subordinate form oflegislation, should be interpreted broadly.11 Mr Beck drew a distinction betweenjudicial decisions, where there will almost always be another party to argue the appeal,and regulatory or administrative decisions, where there will often be no other party tothe decision who can be named as respondent. Mr Beck submitted that r 20.9(2) wasdrafted to address the former situation, not the latter, and should be interpretedaccordingly.[22] In support of the submission that a broad interpretation is called for, Mr Beckrelied on Schmidt v BNZ, in which Jeffries J was confronted with competinginterpretations of a procedural rule relating to security for costs. His Honour observedthat:12Procedural rules are the servants of Court proceedings to achieve just, speedyand at the least cost, expedition of cases. The construction of Court rulesshould always be approached with care but with a readiness to apply them tomeet the justice of the case which is manifest before a Court. Wheneverdifficulties arise on interpretation the Court should always have recourse toR 4 which states:"4.Construction — These rules shall be so construed as to secure thejust, speedy, and inexpensive determination of any proceeding orinterlocutory application."Procedural rules are to a very significant degree generalised in their words, forthey are to cover all situations for which they are to be applied. For that reasonalone such an injunction as is contained in R 4 enjoins a liberal and largeconstruction.[23] Schmidt does not assist the appellants here, however. It dealt with a situationof genuine ambiguity about the interaction of two subsections of the relevant rule.Two interpretations were open on the wording of the relevant provisions. Jeffries Jpreferred the construction which, in his view, best accorded with the purpose of therule even though, on a literal reading, another interpretation was available.11 Although the High Court Rules are drafted by the Rules Committee, I note that s 147 of the SeniorCourts Act 2016 deems them to be part of that Act.12 Schmidt v Bank of New Zealand Ltd [1991] 2 NZLR 60 at 6.[24] In this case, however, the rule is unambiguous: "the notice of appeal must notname the decision-maker as a respondent".13 It is not a narrow or legalistic readingof the Rules to interpret "must not" as "must not"; there is simply no otherinterpretation available.14[25] I also note that the drafting history of the Rules does not support the wideinterpretation of r 20.9(2) advanced by the appellants. Rule 20.9(2) has been in effectsince 1 February 1998 (originally as r 706(3)). In 2003 the Rules were amended(by the addition of r 20.9(3), originally r 709(3)) to exclude appeals under theCommerce Act 1986 from the scope of r 20.9(2). It was obviously open to the draftersof the Rules, at that time, to exclude other decision-makers (or other circumstances)from the operation of the rule. They did not do so. Nor have any further exceptionsor qualifications been added since 2003.[26] In some cases, the inability to name the decision-maker as a respondent maygive rise to difficulties. In Bleakley v Registrar of Friendly Societies and CreditUnions Ellis J observed that the application or r 20.9(2) can on occasions be far fromsatisfactory.15 Similarly, the learned authors of McGechan on Procedure note thatr 20.9(2) could raise difficulties where there is no other party to an appeal.16 InCanterbury Development Corp v Charities Commission the Court suggested that,in the absence of an available respondent, the intituling should simply be"In re Canterbury Development Corporation".17[27] Ultimately, if there are good grounds to amend the rule, then that is a matterfor the Rules Committee. I must interpret the rule, however, as it is currently drafted.It is clear and unambiguous. The decision-maker must not be named as a respondent.If a party wishes to join the decision-maker as a respondent, they are required to makean application under r 4.56, on the basis that their presence before the Court isnecessary to adjudicate on and settle all questions involved in the proceeding. The13 High Court Rules 2016, r 20.9(2).14 As noted in Bleakley v Registrar of Friendly Societies and Credit Unions [2017] NZHC 471at [23].15 Bleakley v Registrar of Friendly Societies and Credit Unions [2017] NZHC 471 at [23].16 Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updatedto 9 December 2019) at [HR20.9.01].17 Canterbury Development Corp v Charities Commission [2010] 2 NZLR 707 (HC) at [108].appellants, however, did not make such an application. Even if they had, I would nothave been persuaded that joinder under r 4.56 is appropriate in this case.[28] The cases where a decision-maker has been joined pursuant to r 4.56 aregenerally those where the decision-maker is the only available contradictor.18 That isnot the situation here. The Commissioner has applied to be joined as an intervenerand, for the reasons I set out below, it is my view that that application should begranted. Even if that were not the case, however, the Registrar's presence before theCourt, as a party, is not necessary. The issue on appeal (which I have summarised at[8] to [10] above) is a narrow one. The Registrar is willing to provide any assistancethe Court may require, without being joined as a party. It is not necessary to join himas a respondent in order to adjudicate on and settle all questions involved in theproceeding.Does s 370 of the Companies Act require a different outcome?[29] The appellants submitted, in the alternative, that r 20.9(2) is inconsistent withs 370 of the Companies Act (read together with r 4.1 of the High Court Rules) and thats 370, as statute law, must prevail.[30] Section 370 empowers the court, on hearing an appeal from a decision of theRegistrar, to approve the Registrar's act or decision or give such directions or makesuch determination in the matter as the court thinks fit.[31] Rule 4.1 provides:4.1 Limit on partiesThe number of persons named or joined as parties to a proceeding must belimited, as far as practicable, to—(a) persons whose presence before the court is necessary to justly determinethe issues arising; and(b) persons who ought to be bound by any judgment given.18 Goodman Fielder v Commerce Commission [1987] 2 NZLR 10 (CA) at 13 and 20.[32] The appellants submitted that these two provisions, when read together, requirethat the Registrar be joined as a party:The Registrar's presence before the Court is necessary in order that theRegistrar be bound by the Court's decision. While the Registrar is agovernment official, it is essential that any decision made by the Court be onethat is binding on the Registrar, and enforceable accordingly.[33] In my view this submission is founded upon a misinterpretation of the relevantprovisions, and their interrelationship. Section 370 authorises the appellate court togive such directions to the Registrar as it thinks fit. Obviously, the Registrar will bebound by any such directions. Section 370 does not require that he be a party to therelevant appeal in order to be bound.[34] Rule 4.1 simply provides that, as far as practicable, the number of partiesshould be limited to those parties who are necessary or who ought to be bound. Therule is a prohibition on adding parties who are neither necessary to the decision norbound by it. The rule does not require the naming or joinder, as parties, of personswho will be bound by a decision in any event. Either pursuant to statute or commonlaw, such entities will usually include lower Courts and Tribunals, as well as otheradministrative and judicial bodies and decision-makers. As Miller J observed inGrate Kiwi Cheese, when declining an application that the Commerce Commission bejoined as a party to an appeal, "the Commission will be bound by this Court'sjudgment whether or not it is named"19 Similarly, in this case, the Registrar will bebound by the Court's judgment whether or not he is named as a respondent.[35] I further note that, if the appellants' submission is correct, and decision-makersmust be named as respondents to appeals in order to be bound by the outcome, thiswould either render r 20.9(2) a dead letter, or would have the startling consequencethat decision-makers would not be bound by the outcome of appeals where appellantscomplied with r 20.9(2). Clearly this cannot be correct.19 Fonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd (2009) 19 PRNZ 824(HC) at [34].Conclusion[36] Rule 20.9(2) is clear on its face. It states that "the notice of appeal must notname the decision-maker as a respondent". There is no basis to interpret the rule asmeaning anything other than what it says. The Registrar was named as a respondent,in breach of the rule. He should therefore be removed as a respondent.Should the Commissioner be permitted to intervene?[37] The court has a discretion, in its inherent jurisdiction, to permit interestedparties to intervene, participate and be heard in a proceeding. Strictly, such personsare not parties to the proceeding; it is simply that the court has granted them the right,to a greater or lesser extent, to participate and be heard in the proceeding.20[38] The onus rests on the would-be intervener to show that its intervention isappropriate.21 The power is broad in nature but is exercised with restraint to avoid therisk of expanding issues, elongation of hearings and increasing the costs of litigation.22[39] In an appeal involving issues of general and wide importance, the Court maygrant leave when satisfied that it would be assisted by submissions from theintervener.23 Leave to intervene may also be granted where intervention is likely toimprove the information before the court on issues wider than those addressed by theparties.24 Intervention may be permitted where the party seeking to intervene hasinterests in the outcome of the case such that it would be unjust to decide the issues inthe absence of that party.25 Generally, however, leave will not be granted when theappeal is essentially one of statutory interpretation and is unlikely to involve broadquestions of policy.[40] The appellants submitted that the Commissioner's interests will not be directlyengaged as she was not a party to the Registrar's decision that is under appeal. Further,20 Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updatedto 9 December 2019) at [HR4.1.01].21 Seales v Attorney-General [2015] NZHC 828 at [43], citing Re Northern Ireland Human RightsCommission (Northern Ireland) [2002] UKHL 25 at [32].22 Hawke v Accident Compensation Corporation [2014] NZCA 552 at [9].23 Hawke v Accident Compensation Corporation [2014] NZCA 552 at [9].24 Taylor v Key [2014] NZHC 3306, [2015] NZAR 730, (2014) 22 PRNZ 533 at [9].25 Taylor v Key [2014] NZHC 3306, [2015] NZAR 730, (2014) 22 PRNZ 533 at [9].a successful appeal will simply restore the status quo, with the companies beingrestored to the register and the Commissioner a party to ongoing litigation with thecompanies.[41] I reject that submission. On the contrary, it is my view that the Commissionerhas an interest in the outcome of the appeal such that it would be unjust to decide theissues in her absence.[42] As I have outlined above, the Commissioner opposed the appellants' originalapplication to the High Court to restore Marketing and Mountforts to the register. TheRegistrar abided the decision of the Court. The Commissioner was unsuccessful inher opposition at first instance but was successful on appeal. The Court of Appeal setaside the order of the High Court that Marketing and Mountforts be restored to theregister. The Registrar's acts in purported implementation of the Court of Appeal'sdecision lie at the heart of these appeals. Indeed, it could be argued that the appellants'request to the Registrar to restore Marketing and Mountforts to the register (again) isa collateral attack on the Court of Appeal's decision. At the very least, if the currentappeals were to succeed, the practical effect would be to deny the Commissioner thefruits of her victory in the previous proceeding.[43] Although the key issue raised by the appeal is one of statutory interpretation,it is not one devoid of public policy. The Commissioner has a statutory duty toprotect the integrity of the tax system26 and she is charged with the care andmanagement of taxes.27 Marketing and Mountforts are both companies that were usedin "Russell template" tax avoidance arrangements.28 The Court of Appeal found thatrestoring the companies would undermine the integrity of the tax system in the eyesof law-abiding taxpayers and was "plainly contrary to the public interest".2926 Tax Administration Act 1994, s 6.27 Tax Administration Act 1994, s 6A.28 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019)29 NZTC 24-019 at [4].29 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019)29 NZTC 24-019 at [70].Restoration of the companies to the register was described by the Court as a"perverse outcome".30[44] Determining whether the Registrar's actions in implementing (or attempting toimplement) the Court of Appeal decision constituted "removal" of the companies interms of the Companies Act (interpreted purposively) is an issue that cannot bedecided in a vacuum. It will be necessary for the Court to understand the full contextin which those actions occurred. The Commissioner is the most logical person(apart from the appellants) to assist the Court with the relevant background and tomake submissions as to how the Registrar's actions should be interpreted, in light ofthe relevant background.[45] Given the context I have outlined, I am satisfied that the Commissioner'sinterests in protecting the integrity of the tax system are directly engaged by theappeals. Her involvement is likely to be of considerable assistance to the Court.Overall, the Commissioner clearly has an interest in the outcome of the appeals to theextent that it would be unjust to decide the issues in her absence. I am thereforesatisfied that her application to intervene should be granted.Result[46] I order as follows:31(a) The Registrar of Companies is struck out as a respondent to bothappeals.(b) The Commissioner of Inland Revenue is joined as a non-partyintervener to both appeals.[47] The parties are encouraged to resolve any costs issues between counsel. If thatis not possible, leave is reserved to the Registrar and the Commissioner to file costsmemoranda within 10 working days of this judgment. Any memorandum in response30 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019)29 NZTC 24-019 at [70].31 The intituling of this Judgment reflects these orders.from the appellants is to be filed within a further five working days. A decision oncosts will then be made on the papers, unless further assistance is required fromcounsel.___________________________Katz J