THE COMMISSIONER OF INLAND REVENUE v BRAK BURNS LTD [2023] NZHC 2144

THE COMMISSIONER OF INLAND REVENUE v BRAK BURNS LTD [2023] NZHC 2144 [10 August 2023]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2023-419-41[2023] NZHC 2144UNDER The Companies Act 1993IN THE MATTER OF The Liquidation of BRAK BURNSLIMITEDBETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND BRAK BURNS LIMITEDDefendantHearing: 9 August 2023Counsel: C D Walmsley for the Commissioner of Inland RevenueJ Taylor for the DefendantJudgment: 10 August 2023JUDGMENT OF ASSOCIATE JUDGE BRITTAINThis judgment was delivered by me on 10 August 2023 at 4.00 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors/Counsel:Brookfields Lawyers, AucklandBytalus Legal, HamiltonInland Revenue Legal Services, HamiltonIntroduction[1] In this proceeding, the Commissioner of Inland Revenue seeks an order placingthe defendant, Brak Burns Limited (Brak Burns), into liquidation. The proceedingwas originally commenced by Service Foods Limited (Service Foods) as plaintiff.[2] The liquidation proceeding was advertised by Service Foods inThe Waikato Times on 28 February 2023, and in the New Zealand Gazette on 1 March2023. On 3 March 2023, the Commissioner filed an appearance in support of theproceeding.[3] On 14 April 2023, Brak Burns filed an application for leave to file a statementof defence out of time, together with a supporting affidavit and a draft statement ofdefence. That application is yet to be determined.[4] On 5 May 2023, counsel for the Commissioner filed a memorandumconfirming that the Commissioner would seek leave to substitute as the plaintiff ifService Foods did not wish to pursue the liquidation proceeding. The memorandumconfirmed that the Commissioner would abide the Court's decision on the applicationby Brak Burns to file its defence out of time.[5] On 10 May 2023, counsel for Service Foods filed a memorandum confirmingthat Service Foods no longer wished to pursue the liquidation proceeding and seekingleave to discontinue.[6] On 15 May 2023, I issued a minute making an order in Chambers substitutingthe Commissioner as plaintiff and giving directions for the Commissioner to file andserve a statement of claim, notice of proceeding and affidavit verifying the statementof claim.[7] On 17 May 2023, the Commissioner filed his statement of claim, notice ofproceeding and affidavit verifying the statement of claim. On that same day, theCommissioner purported to serve the documents on the defendant by sending them tothe email address of the defendant's solicitor, Mr Gloyn.[8] On 1 June 2023, Brak Burns filed an appearance under protest to jurisdiction,relying on two grounds: first, that the High Court Rules 2016 (HCR) do not allow forsubstitution to be effected by an order made in Chambers and that such an order canonly be made on an oral application under r 31.24(4); and, secondly, that theCommissioner had failed to validly serve his statement of claim and supportingdocuments.[9] Brak Burns has not filed an application for a stay of the proceeding. TheCommissioner has filed an application for an order dismissing the protest tojurisdiction.Substitution[10] Rule 31.24 of the HCR provides:31.24 Additional and substituted plaintiffs in liquidation proceeding(1) This rule applies to any person who is entitled to make an applicationto the court for putting a company into liquidation under section241(2)(c) of the Companies Act 1993.(2) The person may become a plaintiff in that proceeding by filing in theregistry of the court and serving on all the parties to the proceeding—(a) a statement of claim in form C 1; and(b) a notice of proceeding in form C 3; and(c) an affidavit in form C 4.(3) Those documents must be filed and served not later than 2 workingdays before the date of hearing of the proceeding.(4) If a person has filed an appearance under rule 31.18 in a proceedingto put a company into liquidation and, on the day appointed for thehearing, or on any day to which the hearing has been adjourned, noplaintiff wishes then to proceed with the hearing of the application toput the company into liquidation, the court may, on the oralapplication of that person,—(a) add that person as a plaintiff in the proceeding; or(b) substitute that person for the plaintiff or plaintiffs or any ofthe plaintiffs in the proceeding.(5) The addition or substitution of a person as a plaintiff undersubclause (4) must be subject to the condition that that person file inthe registry of the court and serve on all the other parties to theproceeding, within 5 working days after the day on which the additionor substitution is made,—(a) a statement of claim in form C 1; and(b) a notice of proceeding in form C 3; and(c) an affidavit in form C 4.(6) If a person to whom rule 31.16(2) applies is a person on whom thestatement of claim is served under this rule, that person must file astatement of defence within 10 working days after the date on whichthe statement of claim is served upon that person.[11] A creditor wishing to join as a plaintiff has two options:(a) under r 31.24(2), the creditor may file a statement of claim, notice ofproceeding and verifying affidavit not later than two working daysbefore the first call of the proceeding; or(b) alternatively, under r 31.24(4), on the first call of the proceeding or onany adjourned date, the creditor may make an oral application to besubstituted as plaintiff.[12] I accept the submission on behalf of Brak Burns that r 31.24 does not expresslypermit the order for substitution of a plaintiff to be made in Chambers. However, thefailure to comply with r 31.24 is an irregularity under r 1.5 and does not nullify theproceeding.[13] In Mao v Inno Capital No 4 Ltd,1 the Court of Appeal considered a submissionthat a liquidation proceeding was a nullity because a party substituted as a plaintiffhad failed to file and serve a fresh notice of proceeding, as required by r 31.24(5). TheCourt found that there was no procedural irregularity, but went on to state: In any event, to the extent there was any defect in the way the substitutionwas dealt with procedurally, it was of a nature which the Court would readilyexcuse under r 1.5.[22] Rule 1.5 is broad in its application. It enables the Court in anappropriate case to allow any amendments and to make any order dealing withthe proceeding generally as it thinks just. Importantly it confirms that a failure1 Mao v Inno Capital No 4 Ltd [2018] NZCA 433, [2019] NZCCLR 16.to comply with the rules is to be treated as an irregularity and does not nullifyany order in the proceeding. There is no reason to read the operation of r 1.5down, particularly in the context of this case.[14] No prejudice has resulted to Brak Burns from the order for substitution beingmade in Chambers, rather than in Court. There is no basis on which Brak Burns couldhave opposed the making of the order.[15] In my minute dated 15 May 2023, I did not expressly grant leave toService Foods to discontinue the proceeding. At all times, the proceeding hasremained extant. The Court has jurisdiction to hear the liquidation proceeding.[16] I confirm the order made on 15 May 2023, substituting the Commissioner asplaintiff in this proceeding.Service[17] The Commissioner submits that the statement of clam and supportingdocuments were served on Mr Gloyn in accordance with an agreement unders 387(1)(e) of the Companies Act 1993.[18] Tessa Te Whareturoroa has sworn an affidavit on behalf of the Commissioner.She deposes that she telephoned Mr Gloyn on 5 May 2023 and obtained from him anemail address for the purpose of service on the defendant of a memorandum on behalfof the Commissioner to be filed in this proceeding. Ms Te Whareturoroa confirms thatshe then emailed the memorandum to Mr Gloyn that same day, as agreed. Mr Gloynhas not filed an affidavit in reply.[19] On 17 May 2023, Ms Te Whareturoroa sent a copy of the Commissioner'sstatement of claim, notice of proceeding and verifying affidavit to Mr Gloyn to thesame email address. Mr Gloyn did not take issue with the email. The defendant hasnot taken issue with the mode of service until filing its appearance under protest tojurisdiction.[20] I find that the telephone call between Ms Te Whareturoroa and Mr Gloynamounts to an agreement under s 387(1)(e) of the Companies Act that documents inthis proceeding can be served on the defendant by sending them to Mr Gloyn by email.[21] If I am wrong about that, I would have found that service was valid unders 387(1)(d) of the Companies Act.2[22] Mr Gloyn is the solicitor on record for the defendant. He has filed numerousdocuments in this proceeding:(a) The defendant's application for leave to file a statement of defence outof time, dated 14 April 2023. This document did not include amemorandum confirming that documents could be served on Mr Gloynby email, however, the cover page of the document confirmed thatMr Gloyn was the solicitor for the defendant. Filed contemporaneouslywas a supporting affidavit from Murray Osmond which produced as anexhibit the proposed draft statement of defence, which stated thatdocuments for service could be sent to Mr Gloyn by email.(b) The defendant's appearance under protest to jurisdiction dated 1 June2023. Although this document was filed after the Commissioner servedhis statement of claim and supporting documents, the appearance underprotest to jurisdiction confirms that Mr Gloyn remains the solicitor onrecord and that documents can continue to be served on him by email.[23] Accordingly, I would have been prepared to make an order, pursuant tos 387(1)(d) of the Companies Act, retrospectively approving service of theCommissioner's statement of claim, notice of proceeding and affidavit verifying thestatement of claim by the sending of those documents to Mr Gloyn by email.Result[24] I make the following orders:2 Active Trucking Ltd v Intercivil Ltd [2018] NZHC 690 at [6].(a) the Commissioner's application to dismiss the protest to jurisdiction isgranted;(b) the defendant is granted leave to file a statement of defence;(c) the defendant shall file and serve its statement of defence, and anyfurther evidence in support of its defence, by 18 August 2023;(d) the Commissioner shall file and serve any affidavits in reply by25 August 2023;(e) the liquidation proceeding is set down for a two-hour defended hearingon 4 September 2023 at 3 pm;(f) the Commissioner shall file and serve written submissions andauthorities, and a bundle of the pleadings and affidavits, by 30 August2023;(g) the defendant shall file submissions by 1 September 2023;(h) costs are reserved._______________________Associate Judge Brittain