THE COMMISSIONER OF INLAND REVENUE V AMPAK ASSOCIATES LIMITED HC WN CIV-2010-485-511

THE COMMISSIONER OF INLAND REVENUE V AMPAK ASSOCIATES LIMITED HC WN CIV-2010- 485-511 30 August 2010IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2010-485-511BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND AMPAK ASSOCIATES LIMITED Defendant Judgment: 30 August 2010 at 3.00 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment is delivered by Associate Judge Gendall on 30 August 2010 at 3.00 pm pursuant to r 11.5 of the High Court Rules.Solicitors: Inland Revenue Department, PO Box 1462, Wellington Peter C Gilbert, Solicitors, PO Box 10070, WellingtonIntroduction[1] On 22 March 2010 the Commissioner of Inland Revenue ("the CIR") issued proceedings in this Court against Ampak Associates Limited ("Ampak") in order to place Ampak into liquidation. The CIR alleged that Ampak was indebted to the CIR for $43,902.76. On 14 June 2010, at callover, counsel advised this Court that an agreement had been reached for Ampak to make payment of the $43,902.76 by 2 July 2010. The matter was then adjourned finally to a call in the list on 26 July 2010. At that 26 July 2010 call, counsel advised the debt was paid and the matter settled. I accordingly granted leave to the CIR to withdraw the proceedings. [2] The CIR has not sought costs Ampak, however now claims that it is entitled to costs on the withdrawn proceedings/discontinuance. This judgment deals with this costs issue.Facts and Background[3] Ampak is a company which provides consulting services to a variety of clients. Its directors are Mr Asia Kea ("Mr Kea") and Mrs Priscilla Anne Kea ("Mrs Kea"). Both Mrs Kea and Ampak were significantly in arrears in their taxation obligations to the CIR. As at 1 June 2010, it seems Mrs Kea was $390,350.48 in arrears and Ampak was $45,999.55. [4] On 5 February 2010 the CIR issued a statutory demand under s 289 Companies Act 1993 to Ampak requiring payment of $43,384.01. Mrs Kea, on behalf of Ampak, responded to that statutory demand on 4 March 2010 (outside the time period required under s 289) and advised the CIR that she had $43,000 available to settle the debt. Mrs Kea further proposed ("the first proposal") that the CIR accept that $43,000 to clear Ampak's debt and that Mrs Kea be able to repay her tax arrears in instalments over time. [5] That proposal was declined on 15 April 2010. [6] While the first proposal was being considered by the CIR's office, on 22 March 2010 these proceedings were filed. The CIR alleged in these proceedings that Ampak was indebted to the CIR for $43,902.76. [7] On 5 May 2010 Mrs Kea, through her counsel, made a further proposal ("the second proposal") to pay Ampak's $43,902.76 debt in full along with monthly instalments to repay her own debt. On 1 June 2010 that proposal was rejected.[8] The CIR has discretion to deal with taxation payment proposals under s 177 Tax Administration Act 1994 ("the Act"). On the evidence advanced for the CIR, the proposals made were considered as "global proposals" to address the tax arrears of both Ampak and Mrs Kea. It was the evidence of Noeline Allison Watson ("Mrs Watson") a Return and Debt Collection Officer employed by the CIR that she had recommended that the proposals be declined as Ampak did not appear to be willing to pay its debt in full unless the global offer was accepted. Mrs Watson noted that had Mrs Kea been willing to settle Ampak's debt in full she could have done so before the statutory demand period expired and before the liquidation proceedings were initiated. [9] Ampak finally paid its tax debt in July 2010. On 2 July 2010 $40,902.76 was paid and on 8 July 2010 the remaining $3,000 was paid.Counsel's submissions[10] In Memoranda filed by counsel on the question of costs in this proceeding, Ampak submits that it is entitled to an award of costs and disbursements on a 2B basis. In particular, Ampak seeks costs for preparing a statement of defence at 0.6 days plus a filing fee of $90; preparing an amended statement of defence and affidavit at 0.6 days plus a filing fee of $90; appearance at the 14 June 2010 hearing at 0.4 days and the appearance at the 26 July 2010 hearing at 0.4 days. [11] Ampak contends that it cannot be said that it was unable to pay its debts as it had $43,000 available. Indeed, Ampak says it notified the CIR prior to these proceedings being initiated on 22 March 2010 that that money was available to Ampak. Therefore, it is submitted the CIR acted without regard to the evidence before him and put Ampak to the cost of having to file a statement of defence on 8 April 2010. [12] Ampak further submits that the CIR's further refusal on 1 June 2010 to accept payment in full required an amended statement of defence and affidavit indicating that judicial review proceedings were being considered to review the CIR's actions. [13] In response, the CIR submits that if Ampak had access to $43,000 available to pay the CIR, the money could have been paid within the statutory demand period. Therefore, costs need not have been incurred. Alternatively, instead of filing the statements of defence, the amount demanded could have been paid. [14] In reply, Ampak contends that once a proceeding is filed a defendant is required to follow the usual court procedures. Any defendant that does not do so runs the risk of anadverse outcome. As Ampak's second proposal was rejected, this necessitated the filing of amended pleadings. [15] The CIR further contends that the proposals by Ampak inappropriately linked the company's tax arrears with those of Mrs Kea's personal income tax arrears. That meant that Ampak's proposals could not be accepted without accepting those for Mrs Kea. [16] In response, Ampak endeavoured to argue that the fact that Mrs Watson believed that she could not accept $43,000 to discharge Ampak's debt without also accepting the payment proposal to pay Mrs Kea's tax arrears in instalments over time is not Ampak's concern.My Decision[17] The starting point in any costs consideration of this type is r 15.23 High Court rules. That rule provides that where a plaintiff discontinues proceedings against a defendant that plaintiff must generally pay costs to the defendant "of and incidental to the proceeding up to and including the discontinuance". [18] That presumption may be displaced if the circumstances make a different costs outcome just and equitable.1 While a court should not speculate on the merits of a case it never heard,2 the reasonableness of the stance of each of the parties must be considered. That analysis is to be undertaken through a consideration of the litigation history as a whole,3 but only during that litigation and not before it.4 Thus, as the Court of Appeal concluded in Thames-Coromandel District Council v Coromandel Heritage Protection Society Inc at [13]:5It is important to the costs regime and its predictability that costs as a remedy be restricted to its proper role: partially compensating the party "winning" a proceeding or a step in a proceeding for its legal costs in respect of that proceeding or that step in the proceeding. Costs are not to be used for "punishing" a party for its conduct outside the proceeding.1 Kroma Colour Prints Ltd v Tridonicat Co NZ Ltd [2008] NZCA 150; (2008) 18 PRNZ 973 at [29].2 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.23.01].3 Kroma Colour Prints Ltd v Tridonicat Co NZ Ltd [2008] NZCA 150; (2008) 18 PRNZ 973 at [26].4 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 at [160] , upheld by the Supreme Court in [2007] 3 NZLR 169 at [40]-[41].5 [2009] NZCA 204; (2009) 19 PRNZ 365.[19] One situation where it will be just and equitable not to apply the presumption is where the plaintiff only withdrew its proceedings as it had indirectly obtained the relief that it sought by issuing the proceeding. 6[20] There are parallels between the present case and that in Small v A Judicial Committee.7 In that case the plaintiff, a horse trainer, issued judicial review proceedings against the Harness Racing Judicial Committee. The Judicial Committee considered that two charges, laid against the plaintiff by the second defendant, were proved where the plaintiff had sought a number of adjournments to receive legal advice. The plaintiff alleged that the decisions to decline an adjournment were a breach of natural justice and were unreasonable. The Appeals Tribunal allowed an appeal by the plaintiff against the Judicial Committee's decision and the plaintiff discontinued his application for judicial review. This court refused the defendants' costs application on those judicial review proceedings discontinued by the plaintiff. [21] The present proceedings were brought by the CIR only against Ampak and not against Mrs Kea. I accept the submission for the CIR that if sufficient money was available to repay Ampak's debt to the CIR at the outset, it should merely have been paid. While it must be acknowledged that Mrs Kea was personally also under pressure from the CIR, in my view things were unnecessarily complicated by her insistence on acceptance by the CIR of a proposal for the resolution of her personal taxation issues. I further conclude that the CIR's conduct was reasonable in treating the second proposal as a "global proposal". On an objective reading of the proposal it is certainly open to reach the conclusion that acceptance of Ampak's proposal was conditional on acceptance of Mrs Kea's proposal. After all, Ampak's proposal was merely to repay all that it owed. This is what was demanded. Therefore, Mrs Kea, at least, ought to have known that had Ampak's debt to the CIR been paid, these proceedings would be discontinued. [22] The statutory demand was ineffective in so far as it did not elicit payment by Ampak. By Ampak subsequently at the eleventh hour paying in full its debt to the CIR, the CIR received precisely what it sought in issuing these proceedings. I am satisfied that the CIR acted reasonably throughout. Thus it is just and equitable as I see it that the presumption envisaged by r 15.23 should not be applied in the present case.6 Ford v First National Real Estate Network Ltd (2006) 18 PRNZ 432; Small v A Judicial CommitteeHC Christchurch CIV-2009-409-2622, 20 April 2010.7 HC Christchurch CIV-2009-409-2622, 20 April 2010.Outcome[23] Ampak's application for costs here is declined. Costs are to lie as they fall.'Associate Judge D.I. Gendall'