COMMISSIONER OF INLAND REVENUE v FALOON [2016] NZHC 990

COMMISSIONER OF INLAND REVENUE v FALOON [2016] NZHC 990 [16 May 2016]IN THE HIGH COURT OF NEW ZEALANDTAURANGA REGISTRYCIV 2015-470-92-95[2016] NZHC 990BETWEEN COMMISSIONER OF INLANDREVENUEPlaintiffAND CLARENCE JOHN FALOONDefendantHearing: 16 May 2016 (by telephone)Counsel: R Park for PlaintiffC J Faloon, in person, DefendantM Ward-Johnson, amicus curiaeG Caro for Official AssigneeJudgment: 16 May 2016JUDGMENT OF HEATH JThis judgment was delivered by me on 16 May 2016 at 4.30pm pursuant toRule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Inland Revenue Department, TaurangaCounsel:M Ward-Johnson, TaurangaCopy to:C J Faloon, DefendantG Caro, Insolvency & Trustee ServicesA question of jurisdiction[1] Mr Faloon applies to review an order made by this Court on 14 April 2016 that he be adjudged bankrupt. His application is brought under s 414(1) of the Insolvency Act 2006 (the Act). A threshold question is whether a challenge to an order of adjudication may only be made by way of appeal to the Court of Appeal.[2] A second application for review has been brought in relation to decisionsmade by two Deputy Registrars of this Court not to accept "appeal" documents forfiling. That turns on whether the documents should have been filed in this Court, or the Court of Appeal.The order of adjudication[3] On 11 and 14 April 2016, Associate Judge Bell heard an application by the Commissioner of Inland Revenue for an order adjudging Mr Faloon bankrupt. The amount claimed was based on an order for costs made in separate proceedings, in favour of the Commissioner. Leaving aside the question of interest, at the time of adjudication, the face value of the debt on which the bankruptcy application was based was $46,735.63.[4] Having considered a variety of factors raised by Mr Faloon to oppose theapplication, the Associate Judge took the view that there was "nothing that stronglymilitates against an order for adjudication being made". The order was made on 14 April 2016, timed at 1.11pm.1The application to review[5] Mr Faloon filed an application asking this Court to review Judge Bell'sorder.2 The application was referred to me on 28 April 2016, when I was sitting in Tauranga. I issued a Minute in which I expressed reservations about the jurisdiction of this Court to review its own order of adjudication.1 Commissioner of Inland Revenue v Faloon [2016] NZHC 760.2 An Associate Judge may exercise the jurisdiction of the Court to make an order of adjudication under s 36 of the Insolvency Act 2006: see s 26I(2)(ha) of the Judicature Act 1908.[6] Mr Ward-Johnson had been appointed as amicus curiae by the Court to assist in the adjudication proceeding. I directed that he be served with the application. I also directed that service be effected on the Official Assignee. Mr Caro appeared for the Assignee at the telephone conference.[7] My provisional view, which I asked Mr Faloon and counsel to consider, was that any challenge to the order of adjudication must be by way of appeal.3 I sought submissions and adjourned the point for consideration at a case management conference to be convened by telephone. That conference took place before me this morning.[8] Mr Faloon attempted (to protect his position) to file appeal documents in the High Court. As a result of decisions made by Deputy Registrar Carruthers and Deputy Registrar Hewlett respectively, Mr Faloon's documents were rejected. Mr Faloon seeks to review those decisions also. In my view, those decisions were plainly correct. An appeal to the Court of Appeal must be filed in that Court.4 That application for review is dismissed.The s 414(1) jurisdiction[9] Section 414 of the Act provides:414 Rehearings and appeals(1) The court may review, rescind, or vary any decision of the court or a Judge under this Act.(2) An aggrieved person may appeal to the Court of Appeal from a decision of the court or a Judge under this Act.[10] The circumstances in which s 414(1) may be used to review a decision of the Court remain unclear, despite a number of judicial decisions drawing attention to the unnecessary complexities that surround the provision. By way of example, I refer to my own judgment in Balzat v Zhang,5 and a subsequent decision of the Court of Appeal in Sharma v Wati.63 Based on s 61 of the Insolvency Act 2006. Section 61 is set out at para [15] below.4 Court of Appeal (Civil) Rules 2005, r 31.5 Balzat v Zhang HC Auckland CIV-2008-404-6062, 29 September 2009 at paras [48]–[61].6 Sharma v Wati [2012] NZCA 195, at para [15].[11] With three exceptions, the Act permits jurisdiction conferred on the High Court (or one of its Judges) to be exercised in chambers. The exceptions are set out in s 411:411 Jurisdiction and powers of court(1) A Judge may exercise all the powers and jurisdiction given to the court under this Act.(2) A Judge may hear a proceeding under this Act, or any aspect of it, in Chambers or in open court, except that the following must be heard and dealt with in open court:(a) the public examination of a bankrupt:(b) an application for annulment of a bankruptcy or the discharge of a bankrupt.[12] Surprisingly, given that an application for annulment or discharge must be dealt with in open Court, no such provision applies in respect of an application to adjudge a person bankrupt. Typically, as a matter of practice, decisions of this Court are challenged by way of appeal to the Court of Appeal. The question is whether there is any residual discretion for this Court to use s 414(1) to "review, rescind orvary" an order of adjudication made under s 36 of the Act.[13] In Re Byron (A Debtor) ex parte Commissioner of Inland Revenue7Tompkins J rejected the proposition that s 9(e) of the Bankruptcy Act 19088 (a provision akin to s 414(1)) should be used to empower the Court to rescind an order of adjudication. His Honour said:In my view s. 9 (e) in spite of its wide and far-reaching character does not give power to rescind an order of adjudication. The rescission of an order of adjudication is quite different from reviewing an order dismissing a petition, or revoking an order of discharge. In the first case the bankrupt's property has been transferred to the Official Assignee, rights of creditors against the bankrupt have been restricted, and there has been a change in the status of the debtor. In the second and third cases the property of the bankrupt has not been affected by being vested in any other person, and rights of creditors have not been restricted. My view as to this is reinforced by the terms of s. 136 (1) which gives a special power to the Court to annul an adjudication where the order ought not to have been made. This power has been used to annul the adjudication of an infant: Re Andrews (1915) 34 NZLR 351; to7 Re Byron (A Debtor) ex parte Commissioner of Inland Revenue [1964] NZLR 508 (SC) at 510.8 Section 9(e) of the Bankruptcy Act 1908 provided that: "Every Court having jurisdiction in bankruptcy may (e) Review, rescind or vary any order or decree made by it under this Act".annul an adjudication where the petition was not properly presented: Re Adcock (1888) 22 S.A.L.R. 42; where an adjudication was made while a suit by the debtor against the petitioning creditor was pending: Re Burke (1886) NZLR 4 S.C. 303; Re Ell (1885) NZLR 3 S.C. 433. [An order of annulment] is in my opinion the appropriate and only power to be invoked where an order of adjudication should not have been made for any reason.[14] The authorities that I discussed in Balzat were not consistent in their application of s 414(1), or its earlier equivalents. While declining to define the full scope of s 414(1), I said:9[59] While I am wary about attempting to define the scope of the s 414(1) jurisdiction, I think that at least two propositions can be drawn safely from the decided cases. In my view, jurisdiction exists when:(a) Either the Court or a Judge has made an order without notice or urgently (eg a Pickwick order) and has given no or few reasons for that decision.(b) The Court has been inadvertently (or deliberately) misled (in fact or in law), so that it has made an order on an incorrect premise. In that class of case, it is more efficient to have the decision reviewed rather than to put the parties to the time, trouble and expense of an appeal.Those two examples provide a flavour of the circumstances in which the discretion to rehear should be exercised.[15] In the case of an order for adjudication, I consider that the question of how to challenge the order10 ("appeal" or "review") is now determined by the Act itself. Section 61 endorses the Byron approach11 and identifies an appeal as the only basis on which an order for adjudication can be challenged. It states:61 Adjudication final and bindingUnless an adjudication is appealed under this Act,—(a) no one can later assert that the adjudication was not valid or that a prerequisite for adjudication was absent; and(b) the adjudication is binding on all persons.(my emphasis)9 Ibid, at para [59].10 Other than through an annulment application under s 309 or 310 of the Act.11 See para [13] above.[16] The need for an appeal is supported by other provisions in the Act. In particular:(a) Section 66 of the Act provides a discretionary jurisdiction for the Court to require the Official Assignee not to advertise an adjudication"if the bankrupt has appealed against an order or has applied for an annulment of the adjudication".(b) Section 416(1) of the Act permits an application to be made by the bankrupt to the Court or the Court of Appeal for an order suspending the adjudication pending the hearing of an appeal against an order of adjudication.[17] Section 414(2) enables any "aggrieved person" to appeal to the Court ofAppeal from a decision of the Court or a Judge under the Act. Rule 24.51(1) of the High Court Rules makes the Court of Appeal (Civil) Rules 2005 applicable to any appeal to the Court of Appeal under s 414 of the Act. The Official Assignee is deemed to be a party to any appeal.12[18] In my view, those provisions are intended to clarify the need for anychallenge of the Court's order to be directed, by way of appeal, to the Court of Appeal, as opposed to being reviewed13 by a Judge of the High Court. Accordingly, I hold there is no jurisdiction (under s 414(1)) for this Court to entertain Mr Faloon's application to review Associate Judge Bell's decision to adjudge him bankrupt.[19] Understanding that a jurisdictional problem might exist, Mr Faloon has filed an appeal in the Court of Appeal. As he has moved house recently, he has been unable to access many of his documents that are held on his computer. He believes the appeal was filed in time. Ms Park, for the Commissioner, accepted that was probably so, but in any event (in the circumstances) indicated that the Commissioner would not oppose any application to extend time.12 High Court Rules, r 24.51(2).13 See Balzat v Zhang HC Auckland CIV-2008-404-6062, 29 September 2009, at paras [59] and [61].[20] I draw Mr Faloon's attention to the fact that the Court of Appeal (Civil) Rules2005 now govern his proceeding.14 In particular, r 35 applies to require security for costs to be given, unless the giving of security was dispensed with by the Registrar.15[21] Mr Faloon expressed some concern that one of the grounds that he had advanced to challenge the order of adjudication might not be one he could raise on appeal. That ground was linked to some events which arose out of a venture in which he and his father participated in the 1970s, involving a diversion of a stream on land near the Palmerston North airport. The history of the litigation arising out ofthat event is set out fully in the Associate Judge's judgment.16 Those factors were plainly in the mind of the Associate Judge when he made his order, and were considered by him. Mr Faloon is able to raise on appeal any complaint that the Associate Judge failed to take account of that factor in exercising his discretion to make an order of adjudication.Result[22] The application for review of the decision to adjudge Mr Faloon bankrupt is dismissed. In circumstances where a difficult jurisdictional issue has arisen in a proceeding involving a litigant in person, I make no order as to costs.[23] The separate application to review the decisions of the Deputy Registrars is also dismissed,17 with no order as to costs.14 Insolvency Act 2006, s 414(2).15 Court of Appeal (Civil) Rules 2005, r 35(6)–(8). See also Reedy v Winstone Ltd [1976] 2 NZLR 690 (CA).16 Commissioner of Inland Revenue v Faloon [2016] NZHC 760 at paras [12]–[19].17 See para [8] above.[24] At the end of the conference, I thanked Mr Ward-Johnson for his assistance as amicus throughout. I explained that his role had now come to an end, unless the Court of Appeal decided separately to appoint him in respect of the appeal._____________________________P R Heath JDelivered at 4.30pm on 16 May 2016