COMMISSIONER OF INLAND REVENUE v CAROL JUNE KARL [2015] NZHC 3233

COMMISSIONER OF INLAND REVENUE v CAROL JUNE KARL [2015] NZHC 3233 [15 December 2015]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2015-485-695[2015] NZHC 3233BETWEEN COMMISSIONER OF INLANDREVENUEPlaintiffAND CAROL JUNE KARLDefendantCIV-2015-485-696BETWEEN COMMISSIONER OF INLANDREVENUEPlaintiffAND ANDREW PAUL KARLDefendantHearing: 15 December 2015Counsel: L Stothart for the Plaintiff in both proceedingsC Karl and A Karl in personJudgment: 15 December 2015ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH[1] The Commissioner of Inland Revenue has filed bankruptcy adjudication proceedings against both Mr Karl and Ms Karl. The statement of claim in the proceeding against Mr Karl refers to a debt of approximately $330,000 which appears to be made up of a combination of unpaid GST and income tax. The schedule attached to the statement of claim shows that the arrears of income tax go back to the year ended 31 March 2004; the claim in respect of GST goes back to 30 September 2011. The Commissioner also claims certain arrears in respect of a student loan going back to 31 March 2004.[2] In respect of Ms Karl, the Commissioner claims $486,959, comprised of unpaid GST going back as early as 31 March 2007, and income tax arrears going back to March 2002.[3] Notices of opposition were filed by both Ms Karl and Mr Karl. Each notice of opposition referred to an affirmation affirmed by each judgment debtor in the proceeding against him or her. The affirmations made by Mr Karl and Ms Karl are substantially identical in form and very similar in content.[4] The judgment debtors' affirmations do not appear to challenge the debtsclaimed by the Commissioner. It appears that any challenges would now be precluded having regard to the provisions of s 109 of the Tax Administration Act.[5] The defence raised by the judgment debtors in their respective affirmations is that the debts have been effectively extinguished by certain bills of exchange drawn by each of the debtors, and allegedly accepted by the Commissioner. Two bills of exchange were drawn by Ms Karl, one on 6 May 2015 and one on 9 July 2015. On the same dates, Mr Karl signed bills of exchange.[6] The format of the four bills of exchange was the same in each case. The bill of exchange drawn by Ms Karl on 6 May 2015 reads:User Account Draw on Inland Revenue Department; 30-112-822 6 May 2015For this Bill of Exchange Pay; Inland Revenue $NZ422,563.47[7] The bill of exchange drawn by Ms Karl on 9 July 2015 in the same form, referring to the same (apparent) account number, but for the sum of $NZ77,305.54.[8] The two bills of exchange drawn by Mr Karl are in identical format, but refer in each case to an apparent account number 49-989-814. The bill of exchange drawn on 6 May 2015 was for the sum of $NZ283,998.12. The 9 July 2015 bill of exchange drawn by Mr Karl was for $NZ51,994.25.[9] Mr and Ms Karl contend that the bills of exchange were accepted by the Commissioner of Inland Revenue, and that they have not subsequently received any rebuttal or notice of dishonour. They submit that no further attempt has been madeto settle or remove the debt, because of the Commissioner's failure to respond to thebills of exchange. Generally, they contend that the Commissioner has either signed the bills of exchange, and so accepted them, or has accepted the bills of exchange by acquiescence of some sort.[10] With their affirmations, Mr and Ms Karl have produced copies of courier tracking forms for each of the bills of exchange, and Courier Post forms reporting"your item was delivered by our courier based at Wellington CBD and signed for by"WCT110 IRD FEATHERSTON 4". Mr and Ms Karl have also produced copies ofletters sent to the Commissioner and (in the case of one letter) to two other officers of the Inland Revenue Department. The first of the letters notes that, in accordancewith s 109 of the Tax Administration Act, the assessments are not "disputable". The letter notes that the assessments are "hereby accepted". The letter then goes on torefer to the bills of exchange sent for "full settlement and closure" of variousproceedings between the debtors and the Commissioner. The first of the lettersattaches the bills of exchange dated 6 May 2015 "for full settlement and closure" asmentioned above. The second letter, addressed to the Commissioner and two other officers of the department, refers to the bills of exchange as having been "received and accepted".[11] In their affirmations, Mr and Ms Karl refer to certain definitions in Black's Dictionary of the word "accept" where used in respect of a bill of exchange. The relevant part of the definition refers to the drawee of a bill of exchange "recognising the draft and engaging to pay it when due".[12] The difficulty with the arguments put forward by Mr and Ms Karl is that there is no evidence that the Commissioner ever accepted the bills of exchange (or any of them) in the manner required by the Bills of Exchange Act 1908.[13] Section 17 of that Act states that the acceptance of the bill is the signification by the drawee of his or her assent to the order of the drawer. Subsection 2 ofsection 17 provides that an acceptance is invalid unless it complies with the following conditions, namely:It must be written on the bill and be signed by the drawee(b) it must not state that the drawee will perform his or her promise by any other means than the payment of money.[14] Further, s 23 of the Bills of Exchange Act 1908 provides that no person is liable as drawer, endorser, or acceptor of a bill unless he has signed it as such.[15] In this case, there is no signature by the Commissioner on the bills, and nothing to suggest that the Commissioner has signed any document as a bill of exchange, and thereby indicated her acceptance of the document as such. The nearest Mr and Ms Karl come is the receipts signed by somebody in the Inland Revenue Department acknowledging receipt of the courier pack or packs by which the bills of exchange were delivered. Any such signatures are not signatures on the bill, and they are not any kind of assent to, or acceptance of, the bills for the purposes of the Bills of Exchange Act.[16] Nor can the debtors' argument that the Commissioner has somehowacquiesced in the sending of the bills of exchange to her be converted into"acceptance" of the bills of exchange for the purposes of s 17 and 23 of the Bills of Exchange Act.[17] I accordingly conclude that there is no evidence that the bills of exchange have ever been accepted by the Commissioner. She accordingly has no liability on them and they are ineffective to extinguish or reduce the debts owed by the debtors. Nor is there any evidence that the Commissioner ever assumed any obligation to accept bills of exchange presented by the debtors.[18] For completion, I mention that in the first letter sent by the debtors to the Commissioner, the debtors have purported to revoke their New Zealand nationality. They make certain assertions in that context which are not clear to the Court, but in any event cannot affect their obligations in respect of their tax liabilities to theCommissioner. The Court's duty is to apply the law as laid down by Parliament.1The relevant law laid down by Parliament in this case is the Insolvency Act 2006.[19] There being no other matters raised by the judgment debtors, the Commissioner is entitled to the adjudication orders sought.[20] Mr and Ms Karl both tell me that they have no assets with which to pay the debts owed by them. In those circumstances, there is no basis to adjourn the proceedings.[21] I accordingly make the following orders:(a) In proceeding CIV-2015-485-695 (relating to Ms Karl), I make an order for adjudication in bankruptcy. I also make an award of costs to the Commissioner on a 2B basis, with disbursements as fixed by the registrar. Those orders are timed at 12.32pm.(b) In respect of proceeding CIV-2015-485-696 (relating to Mr Karl), I make an order for adjudication in bankruptcy. I also make an award of costs to the Commissioner on a 2B basis, with disbursements as fixed by the registrar. Those orders are timed at 12.33pm.Associate Judge SmithSolicitors:For the plaintiffC Karl and A Karl, _______ in person1 Refer to The Queen v Tamati Mason [2012] NZHC 1361 at [33]-[34] and the cases cited by Justice Heath in those paragraphs.