COMMISSIONER OF INLAND REVENUE v FAGHRIYAR & OR [2020] NZHC 1256

COMMISSIONER OF INLAND REVENUE v FAGHRIYAR & OR [2020] NZHC 1256 [8 June 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-000189[2020] NZHC 1256BETWEEN COMMISSIONER OF INLANDREVENUEApplicantAND WAHEEDULLAH FAGHRIYARFirst RespondentATTORNEY-GENERAL on behalf ofREGISTRAR OF COMPANIESSecond RespondentHearing: On the papersCounsel: A B Goosen for ApplicantJudgment: 8 June 2020JUDGMENT OF ASSOCIATE JUDGE P J ANDREWThis judgment was delivered by Associate Judge Andrewon 8 June 2020 at 3.30 pmpursuant to r 11.5 of the High Court RulesRegistrar / Deputy RegistrarDateIntroduction[1] The applicant, the Commissioner of Inland Revenue (Commissioner), seeksorders restoring the company, Discount Tyres and Mechanical Ltd (struck off)(company No. 1882536), to the New Zealand Companies Register. She also seeksleave under r 19.5 of the High Court Rules to commence an originating applicationunder s 89L(1B) of the Tax and Administration Act 1994 (TAA), to extend the timefor issuing a challenge notice to the first respondent and to the company in respect ofvarious tax disputes. She seeks a further order that in accordance with s 89L(2B) ofthe TAA that the time for issuing a challenge notice under s 89P(1) in respect of thefirst respondent's tax dispute be extended by 12 months.[2] The Commissioner says that she seeks these orders so that the tax position ofthe first respondent and the company can be correctly determined according to law,and payment of the resulting tax debts can be claimed. It is said that the correctdetermination of the company's and the first respondent's tax positions is alsonecessary to determine the first respondent's challenge to restraining orders (andapplications for forfeiture) that the New Zealand Police have obtained over propertysituated in Auckland.[3] The Commissioner contends that the company should be restored to theRegister under s 329(1)(a)(iv) of the Companies Act 1993 because she has anundischarged claim against the company for unpaid income tax and GST.Alternatively, it is contended that it would be just and equitable for the company to berestored to the Register, and the Court should grant leave for the Commissioner tobring her application (s 329(1)(b) read with s 329(2)(c) of the 1993 Act).[4] The Commissioner says that the Court should allow more time, unders 89L(2B) of the TAA to issue challenge notices because the tax disputes procedurecontained in Part 4A TAA was interrupted and held in abeyance from May 2016 toDecember 2018 while criminal charges were brought against the first respondent andfinalised. That is claimed to be an "exceptional circumstance" that prevented theCommissioner from issuing challenges to the company and the first respondent withinthe four-year time limit in s 89P(1).[5] The first and second respondents have been served with the Commissioner'sapplications but neither respondent has opposed them. The Registrar of Companies,the second respondent, has indicated that he will not appear and will abide the Court'sdecision.Background[6] The company was incorporated on 6 November 2006. The first respondent,Mr Waheedullah Faghriyar, was sole shareholder and director.[7] From November 2006, the company conducted the business of a retail tyreshop at 98 Great South Road, Otahuhu, and exported second-hand motor vehicle partsto the United Arab Emirates.[8] After the company failed to file income tax returns for the 2009 – 2013 years,between 13 October 2015 and 18 October 2015, the Commissioner issued defaultincome tax assessments for the income earned by the company in those years.[9] After the company failed to file GST returns for the two-monthly periods ended30 April 2008 to 31 December 2012, between 13 October 2015 and 18 October 2015,the Commissioner issued default GST assessments for GST output tax in thoseperiods.[10] After the first respondent failed to file income tax returns for the 2009 – 2013years, between 13 October 2015 and 18 October 2015, the Commissioner issueddefault income tax assessments for income earned by the first respondent in thoseyears.[11] In October 2015, in a proceeding instituted against the first respondent, theNew Zealand Police obtained a High Court restraining order over three Aucklandproperties. Two of those properties had previously been owned by the company beforebeing transferred to a company owned by the first respondent's brother.[12] On 12 February 2016, the company and the first respondent disputed theCommissioner's assessments by issuing Notices of Proposed Adjustment, under s 89Dof the TAA, which commenced the disputes procedure contained in Part 4A. That wasfollowed by the Commissioner issuing Notices of Response under s 89G on 8 April2016.[13] On 20 May 2016, the company and the first respondent rejected theCommissioner's Notice of Response.[14] On 8 July 2016, at a time when the disputes procedure in Part 4A of the TAAwas under way but had not been completed, and after the company had failed to fileits annual returns, the company was removed from the Register.[15] For the period from 24 May 2016 to 14 December 2018, the disputes procedurein Part 4A of the TAA, for both the company and the first respondent, was held inabeyance while criminal charges were brought against the first respondent andfinalised in order to protect the fair trial rights of the first respondent.[16] The criminal prosecution concluded on 14 December 2018, when therespondent was sentenced and the disputes procedure in Part 4A of the TAA was re-commenced.[17] As part of the disputes process, non-statutory facilitated conferences were heldon 19 May 2019 and 16 August 2019. The conference stage has not been concluded.Relevant legal principles[18] Under r 19.2(c) of the High Court Rules 2016, an application to the Court unders 329 of the 1993 Act must be made by an originating application.[19] Section 329(1) of the 1993 Act reads:329 Court may restore company to New Zealand register(1) The Court may, on the application of a person referred to in subsection(2) of this section, order that a company that has been removed from the NewZealand register be restored to the register if it is satisfied that, –(a) at the time the company was removed from the register, –(i) the company was carrying on business or [a proper] reason existedfor the company to continue in existence; or(ii) the company was a party to legal proceedings; or(iii) the company was in receivership, or liquidation, or both; or(iv) the applicant was a creditor, or a shareholder, or a person who had anundischarged claim against the company; or(v) the applicant believed that a right of action existed, or intended topursue a right of action, on behalf of the company under Part 9 of thisAct; or(b) for any other reason it is just and equitable to restore the company tothe New Zealand register.[20] If one of the grounds in s 329(1)(a) of the 1993 Act is proved, the Court has adiscretion whether to restore the company. However, if one of the s 329(1)(a) groundsare established, restoration should follow unless some factor telling against restorationapplies.1 In those circumstances, the respondent has the onus to make out its case forany discretionary factors against restoration.[21] The "just and equitable" ground under s 329(1)(b) does not requireconsideration if the Commissioner can satisfy the Court of one of the grounds ins 329(1)(a). The more general "just and equitable" basis allows discretionary factorsgoing both ways to be considered.2 An evaluative judgment is required.3[22] Where an applicant wishes to have a company restored to the Register for thepurpose of stating or continuing a legal proceeding against the company, the Court isnot required to conduct an in-depth assessment of the merits of the applicant's claim.4As long as the applicant appears to have a genuine case (which is not statute-barred),the courts do not require an applicant to prove more.Analysis and decision[23] I find that the Commissioner has an undischarged claim against the companyfor unpaid income tax and GST as a result of her issuing default assessments. The1 Wellington City Council v Registrar of Companies [2015] NZHC 572, [2015] 3 NZLR 411 at [97].2 Wellington City Council v Registrar of Companies, above n 1, at [97].3 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479 at [32].4 Commissioner of Inland Revenue v Commercial Management Ltd, above n 3, at [67].company, before it was struck off, commenced the disputes procedure in Part 4A ofthe TAA disputing the correctness of those default assessments. That theCommissioner is unable to immediately claim payment through court proceedingsinstituted against the company until the disputes procedure in Part 4A and anychallenge under Part 8A (any subsequent appeals) have been determined,5 does nothave the effect that the Commissioner does not have a claim against the company.Unless the Commissioner's assessments are set aside under the challenge procedures,she will have the right to recover unpaid tax by suit in her own name.6[24] A person who has a contestable claim against a company who has not yetstarted proceedings has standing and a ground to apply for restoration on the basis thatthey have an undischarged claim against the company.7[25] I accordingly find that the Commissioner has standing to bring the applicationand that she has established, because she is a person who had an undischarged claimagainst the company (s 329(2)(a)(iv)), the necessary ground to have the companyrestored to the Register. I find therefore that the company should be restored to theRegister.[26] In the circumstances, it is not necessary to determine the alternative ground forrestoration, namely the "just and equitable" ground. However, were it necessary todecide the point, I would accept the Commissioner's submission that in thecircumstances here it would be equally "just and equitable" to grant the restorationorder sought.[27] I now turn to consider the application under s 89L(1B) of the TAA to extendtime to issue challenge notices.[28] I find that it is appropriate that this application be brought by way of originatingapplication:85 Tax and Administration Act 1994, s 138L.6 Tax and Administration Act 1994, s 156.7 Wellington City Council v Registrar of Companies, above n 1, at [85].8 Commissioner of Inland Revenue v McIlriath (2003) 21 NZTC 18,112 at [15]–[17]; Hong Kongand Shanghai Banking Corporation Ltd v Erceg (2010) 20 PRNZ 652 (HC) at [25]–[26].(a) The application concerns a confined matter;(b) Particularised pleadings are not required;(c) Discovery is not necessary in order to progress the matter;(d) Evidence can be dealt with by way of affidavit and oral evidence is notrequired;(e) Commencing the proceeding by way of originating application willensure just, speedy and expedient determination of this matter.[29] I now turn to address the merits of the application to extend time under s89L(2B) of the TAA.[30] Unless the Court extends the time to issue a challenge notice,9 under s 89P(1)of the TAA, the Commissioner must issue challenge notices to the first respondent andthe company within four years of them issuing a Notice of Proposed Adjustment. Theyboth issued their Notices of Proposed Adjustment on 12 February 2016. Accordingly,the four-year period expired on 11 February 2020.[31] I accept the submission of the Commissioner that she was not in a position toissue challenge notices before the four-year period expired.[32] Under s 89P(3), the Commissioner may not issue a challenge notice before sheissues a statement of position unless one of the exceptions apply.10 No exceptionapplies here. However, the Commissioner was not in a position to issue statements ofposition before the four-year period in s 89P(1) expired because she is required to issueher statement of position in response to a disputant's statements of position and thosehave not yet been issued.119 Under s 89L(2B)(a) or s 89J(2) applies (which is not relied upon).10 Tax and Administration Act 1994, s 89P(3).11 Tax and Administration Act 1994, s s 89M(6B)(a).[33] The next step in the disputes procedure under Part 4A is for the Commissionerto issue a disclosure notice to the company and first respondent, which will trigger therequirement for them to each issue their statements of position.12[34] Accordingly, when the four-year period expired, the dispute had not advancedto the point where the Commissioner was able to issue challenge notices. I accept thatthe consequence of that is that unless I extend the time to issue challenge notices, theCommissioner will be deemed to accept the adjustments proposed in the disputant'sNotices of Proposed Adjustments.[35] Under s 89L(1B), the Commissioner may apply to the High Court for an orderallowing her to issue a challenge notice after the expiration of four years as providedin s 89P(1) if:(a) She considers an exceptional circumstance applies or has prevented herfrom issuing the challenge notice within the four years; and(b) She applies within the four years.[36] I accept that the Commissioner filed the application on 10 February 2020 andthat is within the four-year time limit in s 89P(1). Therefore, the only issue for mydetermination is whether an exceptional circumstance has been established.[37] Section 89L(3) of the TAA defines "exceptional circumstances" as: an event or circumstance beyond the control of the Commissioner or officerof the department that provides the Commissioner with the reasonablejustification for not rejecting the adjustment proposed by a disputant withinthe response period.[38] Accordingly, when faced with an application under s 89L(1B), the Court isrequired to identify a qualifying event or circumstance, evaluate whether that providesreasonable justification, and exercise a residual discretion.1312 Tax and Administration Act 1994, s, s 89M(5).13 See the Court of Appeal's analysis of a similar provision in Commissioner of Inland Revenue vFuji Xerox NZ Ltd (2002) 20 NZTC 17,470 (CA) at [13].[39] I accept the submission of the Commissioner that the disputes procedure beingheld in abeyance for a period of approximately two-and-a-half years to protect the firstrespondent's fair trial rights in criminal proceedings is:(a) A qualifying exceptional circumstance beyond her control;(b) That provides reasonable justification for not issuing timely challengenotices; and(c) That the Court should exercise its residual discretion to grant theextension sought so that the tax positions of the company and the firstrespondent can be determined according to law.[40] For all these reasons, I grant all of the orders sought in the Commissioner'soriginating application dated 7 February 2020.Result[41] I make the following orders:(a) The company, Discount Tyres and Mechanical Limited (struck off)(company No. 1882536) is restored to the New Zealand Register ofCompanies pursuant to s 329 of the Companies Act 1993;(b) I grant leave to the Commissioner under r 19.5 of the High Court Rules,to commence an originating application under s 89L(1B) of the TaxAdministration At 1994 to:(i) extend the time for issuing a challenge notice to the firstrespondent in respect of the tax dispute commenced by hisNotice of Proposed Adjustment dated 12 February 2016; and(ii) extend the time for issuing a challenge notice to the company,Discount Tyres and Mechanical Ltd, in respect of the tax disputecommenced by its Notice of Proposed Adjustment date12 February 2016.(c) That in accordance with s 89L(2B) of the Tax Administration Act 1994,the time for issuing a challenge notice under s 89P(1), in respect of thefirst respondent's tax dispute, is extended by 12 months from the dateof these orders.(d) That in accordance with s 89L(2B), the time for issuing a challengenotice under s 89P(1), in respect of the company's tax dispute, isextended by 12 months from the date of these orders.[42] There is no order as to costs.14__________________________Associate Judge P J Andrew14 I note that the applicant only sought costs in the event that her application was opposed (seeparagraph 1.6 of the originating application).