THE COMMISSIONER OF INLAND REVENUE v BOSS TRANSPORT LIMITED [2020] NZHC 3278

THE COMMISSIONER OF INLAND REVENUE v BOSS TRANSPORT LIMITED [2020] NZHC 3278[11 December 2020]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2019-485-758[2020] NZHC 3278BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND BOSS TRANSPORT LIMITEDDefendantCIV-2019-485-760BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND BOSS TRANSPORT REPAIRS LIMITEDDefendantCIV-2019-485-761BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND BOSS TYRE SERVICES LIMITEDDefendantCounsel: A Sharratt for Commissioner of Inland RevenueG Dewar for DefendantsJudgment: 11 December 2020COSTS JUDGMENT OF ASSOCIATE JUDGE JOHNSTON[On the papers][1] This costs judgment replaces a judgment issued on 4 and recalled on7 December 2020. It was necessary to recall the earlier judgment because I hadoverlooked submissions made on behalf of the Commissioner of Inland Revenue byMs Sharratt, and indeed proceeded on the basis that a costs claim by the threedefendants was unopposed. I therefore approach the issue of costs afresh.[2] The three defendant companies are members of a group. All three fell intoarrears in terms of their tax obligations. The amounts involved were substantial. InOctober 2018 the Commissioner of Inland Revenue commenced recovery action byserving statutory demands. When the defendants did not comply with these demands,proceedings were commenced in November 2019. In late 2020, with theCommissioner of Inland Revenue's applications for orders winding up the defendantsset down for hearing, the defendants cleared their tax debts. On 21 September 2020the Commissioner of Inland Revenue filed a notice of discontinuance in relation to allthree proceedings.[3] The submissions made by Ms Sharratt on behalf of the Commissioner of InlandRevenue and Mr Dewar on behalf of the defendants are polarised, with both partiesseeking costs. The gulf between the parties on the costs issue appears to reflectradically different perspectives as to the appropriateness of the Commissioner ofInland Revenue's approach, and different starting points for the analysis of costs.[4] Ms Sharratt submits that the Commissioner was successful in her claims. Shereferred me to r 14.2(1)(a) of the High Court Rules 2016 which provides that thesuccessful party in any proceeding — interlocutory or final — is prima facie entitledto a costs award. She referred me to Greys Avenue Investments Ltd v New ZealandMint Limited.1 That case too involved winding up proceedings. There, a statutorydemand was withdrawn when the debt was paid. Ms Sharratt submitted that the caseestablished or reinforced that the successful party in terms of r 14.2(1)(a) is the partywho has succeeded by reference to the substantive outcome of the case, and that in thecase of a statutory demand that involves establishing that the party serving the1 Greys Avenue Investments Ltd v New Zealand Mint Limited [2015] NZHC 2633.statutory demand has been determined to be a creditor for the amount of that demand.She quoted Associate Judge Bell in Greys Avenue Investments as saying:2If the outcome is that the creditor is paid or arrangements are made forpayment, the creditor will be vindicated. If the creditor agrees to withdrawthe demand as part of those arrangements, that does not make the creditor theloser. There is no reason to require the creditor to pay costs. The situation isa little different from those of creditors who withdraw bankruptcy orliquidation applications on being paid or accepting arrangements for payment.They are invariably entitled to costs.[5] Essentially, Ms Sharratt submitted that as the Commissioner of Inland Revenuehad served statutory demands in respect of the defendants' outstanding tax obligations,and the defendants had ultimately accepted responsibility for the payment of the same,the Commissioner of Inland Revenue was wholly successful and entitled to her costs.[6] As to quantum, Ms Sharratt calculated the Commissioner of Inland Revenue'sactual costs were less than scale costs on a 2B basis, and sought these:(a) in relation to Boss Transport Ltd, costs of $2,324 plus disbursements of$829.95 giving a total of $3,153.95;(b) in relation to Boss Transport Repairs Ltd, costs of $2,324 plusdisbursements of $831.11 giving a total of $3,155.11;(c) in relation to Boss Tyre Services Ltd, costs of $2,324 plusdisbursements of $831.11 giving a total of $3,155.11.[7] At the risk of putting words in his mouth, I doubt whether Mr Dewar for thedefendants would argue with much of what Ms Sharratt said of the way that the costsregime generally operates. That is not his case. He submits not only that theCommissioner of Inland Revenue should not have her costs, but that the Court shouldaward costs to the defendants on the discontinuance ($6,000 in each proceeding, so atotal of $18,000) because " the plaintiff Commissioner has behaved arbitrarily,unreasonably and oppressively in the conduct of this litigation".2 At [33].[8] Mr Dewar says that the defendants " through the unilateral discontinuance,have lost the right to maintain the defence they brought to the Court and to challengethe plaintiff's evidence, but, in any event, are entitled to costs pursuant to r 15.23". Ido not follow the first part of that sentence. After the payment of the taxes involved,the Commissioner discontinued the proceedings. At that point, there was no caseagainst the defendants in respect of which they might maintain a defence. However,to the extent that the defendants are saying that they are entitled to bring to the Court'sattention matters that might otherwise have formed part of their defence as a basis fora claim for costs pursuant to r 15.23, the submission is readily understandable.[9] As Mr Dewar goes on to submit, r 15.23 provides that in the absence of adefendant's agreement to the discontinuance of a proceeding, prima facie adiscontinuing plaintiff becomes obliged to pay costs to the defendant. Mr Dewarreferred me to Associate Judge Abbott's judgment in FM Custodians Ltd v Pati3 wherehis Honour concluded that in considering an application by a defendant for costs on adiscontinuance the Court was entitled to take into account a wide range ofconsiderations including such things as the reasonableness of the parties respectivelyhaving commenced and defended the proceeding, and their conduct of it.[10] I accept that the defendants are entitled to make the application they do forcosts pursuant to r 15.23, and that the Court must take a broad view of the matter inassessing both whether the defendants should secure an award of costs and thequantum of the same.[11] Mr Dewar says that the defendants fell into arrears with the payment of tax asa result of events outside their control namely what he describes as "unilateral andcoercive actions of the New Zealand Transport Agency" in late 2018 and defalcationsby the group's National Manager of a substantial sum of money which came to lightin early 2019. Mr Dewar says that the defendants never denied their obligation to payoutstanding tax and that those responsible for their governance took immediate actionto place them in a position to do so. He adds that had the companies been wound up3 FM Custodians Ltd v Pati HC AK CIV-2012-404-802 [31 July 2012].this would have resulted not only in the tax not being recovered but in as many as 40staff members losing their jobs and the destruction of a viable business.[12] In those circumstances, Mr Dewar describes the actions of the Commissionerof Inland Revenue through the officers concerned as having "relentlessly pursuedlitigation when it was unreasonable to do so and appears to impute to her the motiveof "avoidance of exposure of unreasonable conduct" by discontinuing the proceeding.[13] On the basis of that argument – expressed in the very strongest terms –Mr Dewar refers to aspects of the affidavit evidence before the Court and in doing soidentifies what he submits are examples not only of unreasonable vigour on the partof the Commissioner of Inland Revenue in pursuing these claims but the presentationby her through officers of false evidence.[14] Mr Dewar points out some apparent inaccuracies in the Commissioner ofInland Revenue's affidavit evidence in respect of which there are no obviousexplanations, and Ms Sharratt has not sought to explain these.[15] There is force in both of these competing arguments.[16] On their face, both rr 14.2(1)(a) and 15.23 of the High Court Rules apply.Ms Sharratt is quite correct in submitting that from a substantive point of view theCommissioner of Inland Revenue is the successful party in the litigation. On the otherhand, Mr Dewar raises some serious issues concerning the approach taken by theCommissioner of Inland Revenue, to which there has been no response. I reach noviews about those allegations. It appears to me that it would be quite unfair to theindividuals involved to do so on the basis of untested affidavit evidence in the contextof a costs application. By the same token it is troubling that the Commissioner ofInland Revenue has not offered any response.[17] In the end, the view I take is that substantial justice will be done in this case ifI decline both costs applications and direct that costs are to lie where they have fallen.Associate Judge JohnstonSolicitors:Inland Revenue, Wellington for plaintiffs in both proceedingsThomas Dewar Sziranyi Letts, Lower Hutt for defendants in both proceedings