EASTBUS LTD AND ANOR V COMMISSIONER OF INLAND REVENUE HC DUN CIV 2006-412-000153

EASTBUS LTD AND ANOR V COMMISSIONER OF INLAND REVENUE HC DUN CIV 2006-412-000153 3 March 2006IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY CIV 2006-412-000153BETWEEN EASTBUS LTD First Plaintiff AND SOUTHBUS LTD Second Plaintiff AND COMMISSIONER OF INLAND REVENUE DefendantCIV 2005-412-000615AND BETWEEN COMMISSIONER OF INLAND REVENUE Plaintiff AND SOUTHBUS LTD DefendantCIV 2005-412-000616AND BETWEEN COMMISSONER OF INLAND REVENUE Plaintiff AND EASTBUS LTD Defendant Hearing: 3 March 2006 Appearances: Mr Novak appears in person for the companies W J Wright for the Commissioner Judgment: 3 March 2006EASTBUS LTD AND ANOR V COMMISSIONER OF INLAND REVENUE HC DUN CIV 2006-412-000153 3 March 2006ORAL JUDGMENT OF HON JUSTICE JOHN HANSEN[1] This morning in the winding up list in Dunedin two matters were called before the Associate Judge. The first was an application by the Commissioner of Inland Revenue to wind up a company known as Southbus Ltd, the second an application to wind up a company known as Eastbus Ltd. Both proceedings were issued as long ago as August of last year. They appear to have been called before the Court on 27 October, 1 December, 2 February and today. On the last occasion, against the objections of the Commissioner, as I understand it, and I stress I am dealing with this matter as a matter of urgency, the Associate Judge granted an adjournment. [2] Mr Novak, who appears today with my leave as principal, and I imagine shareholder of the two companies, apparently applied on behalf of the companies to the Commissioner for agreement to a further adjournment which was declined. As a consequence he has now issued a statement of claim seeking judicial review of various decisions made through the delegated powers of the Commissioner and seeks an interim injunction to prevent the Commissioner proceeding with the liquidation applications. [3] Turning first to the application for judicial review. [4] On behalf of the two companies Mr Novak applied to the commissioner pursuant to ss 176 and 177 of the Tax Administration Act. Those original sections have been replaced by s 92 of 2002 No. 32. Those sections effectively grant the Commissioner power to give financial relief to a taxpayer. The Commissioner declined relief and it is said in the statement of claim that the Commissioner has breached natural justice, he has breached the legitimate expectation of the companies, he has failed to take into account relevant considerations and his decision is so unreasonable that they are decisions that no reasonable person could reach. In other words, the standard grounds of judicial review.[5] Because of the shortness of time I have not received any submissions as to whether or not the decisions of the delegated officers from the Commissioner under these sections are, in fact, reviewable. For present purposes I am prepared to accept that they are. [6] All of these grounds roll into one factual scenario. The company Eastbus entered into a contract with the Otago Regional Council in May 2004. It was a bus service contract to run for five years from 1 July 2004. The contract was cancelled by the Regional Council on 2 July 2004, apparently on the grounds that there were incorrect destination signs, buses were used that were not approved and trips were missed. They are matters that are not necessarily accepted by Mr Novak on behalf of the companies. [7] Mr Novak has now notified the Otago Regional Council that he claims against them for this cancellation and claims substantial damages totalling, as I understand it, in excess of $850,000. Effectively he has, in terms of the contract, requested the Council to refer the matter to arbitration. Interestingly, although the contract was purportedly cancelled on 2 July 2004 the claim for submission to arbitration was not forwarded to the Otago Regional Council until 24 February 2006. [8] What is being said on behalf of these companies in the judicial review proceedings is that the Commissioner should await the outcome of the arbitration because Mr Novak is confident of success, the Commissioner's position would not be eroded in the meantime, and that there is a likelihood of the Commissioner recovering more; all of which would give an appearance of fairness and integrity of the tax system in terms of s 6A. [9] Before turning to the application for injunction, I note that under s 176 the Commissioner may not recover outstanding tax to the extent that:(a) recovery is an inefficient use of the Commissioner's resources; or (b) recovery would place a taxpayer, being a natural person, in serious hardship.It is clear that subs (b) cannot apply in the case of companies.[10] Section 177 provides for a taxpayer to make written application for relief. The Commissioner, upon receiving that, may accept the request or seek further information from the taxpayer, make a counteroffer, or decline the request. There is no suggestion there of holding hearings. It seems to me that the view that the responsible delegated officers of the Commissioner were obliged to enter into negotiations with Mr Novak is somewhat misguided given that the Commissioner may simply decline. However, as I indicated I am prepared, for present purposes, to accept that the proceedings are, at the least, justicable. [11] The law in relation to the grant of interim injunctions is well settled. The Court of Appeal in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 listed a number of factors to be considered. Firstly, whether or not there is a serious question to be tried. Secondly, the balance of convenience. Thirdly, the adequacy of damages to a plaintiff, which perhaps does not give any particular rise for concern in this matter. Finally, a requirement to stand back and view the overall justice of the situation. [12] In this particular case Mr Novak, on behalf of the companies, has particularly relied on the use of an injunction to maintain the status quo. He referred to the decision of Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 423. He has not referred me to decisions specifically dealing with the winding up of companies. [13] The Court does have power, under its inherent jurisdiction, to grant an injunction if it was satisfied that: to allow an application for winding up to be made or advertised would constitute an abuse of process of the court. Such orders are sparingly made and the ultimate and governing consideration can only be whether presenting or proceeding with a petition savours of unfairness or undue pressure: whether that is so depends on the particular facts. Subject to that overriding principle, the general rule is that a winding up petition will ordinarily be restrained where there is a genuine dispute about whether the sum is due. However, where the debt itself is admitted and a counterclaim is advanced the petition should normally proceed with the Court retaining a discretion about whether it ultimately makes a winding-up order: per Richardson J inFletcher Development & Construction Ltd v New Plymouth Hotels Holdings Ltd [1986] 2 NZLR 302 (CA) McGechan HR238.18[14] This case goes much further than a counterclaim. There is no dispute that the money is owed by these companies to the Commissioner. There is no counterclaim against the Commissioner. The Commissioner is being told that he should wait and stay his hand in the hope that perhaps Eastbus Ltd will be successful in the arbitration. [15] However, the matter goes further when considering the actions of the commissioner and the integrity of the tax system. It is conceded that arrangements have been made for the payment of tax in the past and they have not been honoured. It is said that Southbus Ltd is trading profitably but cannot pay its liabilities to the Commissioner because funds have been taken from that company and transferred into Eastbus Ltd to pay wages. It would appear in those circumstances, given that Eastbus Ltd appears to be insolvent because it certainly cannot pay this debt, that there is little hope of recovery, that the situation could dramatically worsen if Southbus Ltd continues to trade, and that in relation to Eastbus Ltd penalties will continue to accrue. There remains, as Mr Wright submitted, a proper concern that the exposure of the revenue, if these companies are allowed to continue in existence, will increase, not decrease. [16] Standing back and looking at this matter overall it seems to me that the review proceedings, in all of the circumstances, have little chance of succeeding. The balance of convenience favours the Commissioner because if the claim against the Regional Council is properly and soundly based the liquidator not only can, but would have an obligation to, pursue it. Finally, given that these proceedings have been before the Associate Judge since August of last year and Eastbus Ltd has delayed since 2 July 2004 until a few days ago in making its claim, the overall justice of the situation requires a refusal of the application for injunction. [17] Accordingly the application for interim injunction is refused. [18] I have received from the Commissioner certificates as to unpaid debt in relation to both companies.[19] Mr Novak suggests that Southbus Ltd may well be solvent. It has not paid the debt. It seems to have advanced $80,000 in some shape or form to the insolvent Eastbus Ltd and is unlikely to receive it back. There is nothing to suggest realistically it is in fact solvent. [20] Accordingly there will be an order winding up both Eastbus Ltd and Southbus Ltd. Mr Ian Andrew Nellies, who has already consented, is appointed liquidator of both companies. Such orders were made at 12.54pm on Friday 3 March 2006. [21] There will be costs on the liquidation on all appearances where costs have not to date been granted by the Associate Judge to the Commissioner on a 2B basis. There will be costs of the application for interim injunction this morning to the Commissioner on a 2B basis. There will be disbursements to the Commissioner as approved by the Registrar in relation to both the liquidations and the injunction matters.Solicitors: Wilkinson Adams Lawyers, Dunedin for Commissioner CC: Mr Novak