THE COMMISSIONER OF INLAND REVENUE v IMRAN MOHAMMED KAMAL [2015] NZHC 3095

THE COMMISSIONER OF INLAND REVENUE v IMRAN MOHAMMED KAMAL [2015] NZHC 3095 [7 December 2015]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2015-485-208[2015] NZHC 3095UNDER The Companies Act 1993IN THE MATTER OF an application for orders under s 286(5)BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND IMRAN MOHAMMED KAMALDefendantCIV-2015-485-209UNDER The Companies Act 1993IN THE MATTER OF an application for orders under s 245ABETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND IMRAN MOHAMMED KAMALDefendantCIV-2015-485-210UNDER The Companies Act 1993IN THE MATTER OF an application for orders under s 286(5)BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND IMRAN MOHAMMED KAMALDefendantHearing: 3 December 2015Counsel: P Courtney for the Plaintiff in all proceedingsJ Mahuta-Coyle for the Defendant in all proceedingsJudgment: 7 December 2015JUDGMENT OF ASSOCIATE JUDGE SMITH[1] In each of these proceedings, Mr Kamal applies for orders varying certain discovery orders I made on 16 June 2015. He asks the Court to direct the Commissioner to provide extensive additional discovery.The Court proceedings[2] Mr Kamal has acted on a number of occasions as a company liquidator. In two of the proceedings now before the Court, the Commissioner seeks orders under s 286(5) of the Companies Act 1993 (the Act) prohibiting Mr Kamal from acting as a company liquidator for a period of up to five years.1 In the other proceeding (CIV- 2015-485-209) various orders are sought under s 245A of the Act, including a prohibition order similar to that sought in the other proceedings.[3] Proceeding CIV-2015-485-208 (which I will call the Hillman proceeding) isconcerned with Mr Kamal's acts or omissions in his capacity as liquidator of acompany called Hillman Ltd (Hillman), which was put into voluntary liquidation on 26 June 2014. Proceeding CIV-2015-485-209 (the JDH proceeding) is concernedwith Mr Kamal's acts or omissions in his capacity as liquidator of a company calledJDH Holdings Ltd (JDH), which was put into voluntary liquidation on 10 April 2014. Proceeding CIV-2015-485-210 (the GDZ proceeding) is concerned1 Section 286(5) of the Act provides:286 Orders to enforce liquidator's duties(5) If the court is satisfied that a person is unfit to act as a liquidator by reason of persistent failures to comply or the seriousness of the failure to comply,(a) the court must make a prohibition order; and(b) the period of the order is a matter for the discretion of the court but the court may make a prohibition period for an indefinite period.with Mr Kamal's acts or omissions in his capacity as liquidator of a company calledGDZ Ltd (GDZ), which was put into voluntary liquidation on 11 July 2014.[4] The Commissioner is a creditor in the liquidations of each of Hillman, JDH and GDZ. As such, she has standing to apply for the orders sought under s 245A and 286(5) of the Act.[5] In each of the proceedings, the Commissioner alleges that Mr Kamal is unfit to act as a company liquidator. She refers to his convictions for various offences associated with the filing of false tax returns or the provision of misleading information to the Commissioner by way of altered tax invoices, for another company of which he was sole director. She also alleges that Mr Kamal had business relationships with certain parties which disqualified him from accepting appointment as liquidator.[6] The Commissioner's allegations in the Hillman and GDZ proceedings include claims that Mr Kamal failed in his duty to call meetings of creditors after receipt of notices from the Commissioner requiring him to do so.[7] In the JDH proceeding the Commissioner acknowledges that Mr Kamal did convene a meeting of creditors (on 26 May 2014), but says that he failed to give proper notice of the meeting to two creditors, Sheppard & Ormsby Ltd and Telecom, wrongly rejected a claim form submitted by Sheppard & Ormsby, and refused to allow a representative of that company to participate in the meeting by telephone. The Commissioner alleges that Mr Kamal did accept a claim for $38,000 made jointly by Fiona and Russell MacDonald, who were directors of and shareholders in JDH, but the rejection of the Sheppard & Ormsby claim meant that only two creditors (the Commissioner and the MacDonalds) could be counted for voting purposes. The Commissioner alleges that Mr Kamal then wrongly decided that there were insufficient creditors present to make a quorum, and (wrongly) adjourned the meeting. In the result, a resolution proposed by the Commissioner that Mr Henry Levin be appointed liquidator in Mr Kamal's place was not put to a creditors' vote.[8] At a reconvened meeting of JDH's creditors on 12 June 2014, the Commissioner's resolution to replace Mr Kamal as liquidator did not achieve a majority of votes cast. The Commissioner contends that the 12 June 2014 meeting was invalid, and that actions taken at the meeting should be invalidated.[9] The Commissioner seeks an order in the JDH proceeding setting aside the vote which defeated her resolution to appoint Mr Levin as the liquidator, and anorder appointing Mr Levin as liquidator in Mr Kamal's place. The Commissioneralso seeks an order under s 245A(2)(d) of the Act2 that Mr Kamal be found unfit to act as a liquidator, and that he be prohibited from being appointed liquidator, or continuing to act as liquidator, for a period of five years (or such other period as the Court orders).[10] In his statements of defence, Mr Kamal admits the convictions, andacknowledges that he did not call creditors' meetings in the Hillman and GDZ proceedings (he says that the costs of creditors' meetings were not justified given therelatively small sizes of the liquidations). He also pleads as an affirmative defence in those proceedings that he resigned as liquidator of Hillman and GDZ before the Commissioner commenced the proceedings and that, in the absence of any continuing non-compliance with his duties as liquidator under the Act at that point, there is no basis for the relief the Commissioner now seeks. He denies that there were circumstances which disqualified him from accepting the appointments as liquidator of the three companies.[11] In his defence filed in the JDH proceeding, Mr Kamal says that the Sheppard & Ormsby claim was properly rejected, because the company had wrongly charged JDH in advance for services which had not yet been rendered. He denies that the 12 June 2014 meeting was invalid, or that actions taken at the meeting should be invalidated.2 Section 245A(2)(d) of the Act materially provides that the Court "may, on the application of the liquidator or a creditor, (d) make any other orders that the Court thinks necessary".Mr Kamal's discovery application[12] Mr Kamal applies for orders varying an order for tailored discovery made on 16 June 2015, and directing the Commissioner to provide general discovery, or additional tailored discovery of the categories of documents listed in a schedule to the application.[13] The categories of documents which were the subject of the tailored discovery order made on 16 June 2015 had been largely agreed between counsel. The document categories were primarily concerned with documents to be disclosed by Mr Kamal, although the Commissioner was also ordered to provide tailored discovery of any documents held by her in the same categories.[14] Mr Kamal's application to vary the tailored discovery order is made underr 8.17 of the High Court Rules. That rule provides:8.17 Variation of discovery order(1) Subject to rule 7.18, a party may apply for an order varying the terms of a discovery order.(2) The variation may be granted by a Judge on the ground that—(a) compliance or attempted compliance with the terms of the order has revealed a need for a variation; or(b) there has been a change of circumstances that justifies reconsideration.[15] Mr Kamal asks the Court to direct the Commissioner to disclose the following additional categories of documents:Item Category Proposed Date range1 Enforcement files, created by the relevant Debt Officers of the Commissioner, responsible for managing or enforcing the tax debt of:[JDH], [GDZ], [Hillman] 1 Jan 2012-present in all cases2 Any internal correspondence of the Commissionerbetween the relevant Debt Officers and theirmanagers concerning the appointment of aliquidator to:[JDH], [GDZ], [Hillman] 1 April 2014-present(JDH),July 2014-present(GDZ),1 Jun 2014–present(Hillman)3 Any internal correspondence, file notes, handwritten notes, memoranda or other documentsleading to, or concerning, the Commissioner'sdecision to commence the proceedings1 April 2014-present4 Any documents setting out the business case forcommencing the proceedings1 April 2014-presentThe Commissioner's notice of opposition[16] The Commissioner has filed a notice of opposition, in which she contends that there is no jurisdiction under r 8.17 to vary the tailored discovery orders. She says that the claimed need for a variation does not arise out of Mr Kamal'scompliance or attempted compliance with the order, and there has been no change of circumstances which would justify reconsideration of the order. Secondly, she contends that the additional documents sought are not relevant to any issue in theproceedings. She says that the Commissioner's enforcement files, including anyinternal correspondence between the debt officers and their managers, and any otherdocuments involving the Commissioner's decision to commence the proceedings, are"totally unconnected" with the issues the Court is required to determine.The issues for determination[17] Mr Mahuta-Coyle accepts that the two issues for determination are thoseraised by the Commissioner's notice of opposition, as described in para [16] of this judgment.[18] It is common ground that if the Court concludes that the additional documents are not relevant for discovery purposes, the application should be determined against Mr Kamal. In those circumstances, it will be convenient to deal with the relevance issue first.Are the additional documents sought relevant to an issue or issues in the proceedings?[19] Mr Mahuta-Coyle accepts that there must be some connection between the categories of documents now sought and the issues in dispute in the proceedings. The issue on which he submits the additional documents are relevant is how the Court should exercise its discretion in the event of the Commissioner succeeding in making out her case. Are the circumstances of the case sufficiently serious to justify a prohibition order, and if so how long should such an order remain in force?[20] In his written submissions, Mr Mahuta-Coyle submitted that documents inthe categories sought will or may show the Commissioner's motive for bringing theproceedings, and any prejudice which is said to have been caused to the Commissioner or loss suffered by the Commissioner or others. In his submission,the Commissioner's motives are relevant because the categories of documents soughtwill reveal her own view of the seriousness of the alleged statutory breaches by Mr Kamal, and her view of the prejudice, or loss, suffered. As I understand thesubmission, the argument is that the Commissioner's view of the relative seriousness of Mr Kamal's conduct in these cases will be either helpful to Mr Kamal in thepresentation of his case on the "prohibition or not, and if so for how long" issues, oradverse to him. Either way, Mr Mahuta-Coyle says the documents sought must be relevant.[21] In his oral submissions, Mr Mahuta-Coyle submitted that the Commissioner must have formed a view as to how serious the acts or omissions of Mr Kamal were, and must also have formed a view that the current court proceedings were justified.He submitted that the orders sought "may reveal" relevant documents which could assist Mr Kamal. Mr Mahuta-Coyle noted that the Commissioner is a creditor in a substantial proportion of all company liquidations, and that any policies or guidelines she may have for instituting proceedings such as those taken against Mr Kamal will be relevant.[22] For the Commissioner, Ms Courtney refers to the judgment of Asher J inCommerce Commission v Cathay Pacific Airways Ltd, in which the learned Judge said:3The starting point in such a consideration of appropriate tailored discovery orders must be an analysis of the issues. Discovery categories will reflect the issues and will only be ordered for the discovery of documents that are relevant to those issues. Except in exceptional circumstances, these issues will be discernible from a review of the pleadings. Discovery orders that areessentially of a "fishing" nature are not part of tailored discovery. Orderswill not be granted where the categories do not relate to a pleaded relevant issue, but rather a non-pleaded issue which might be pleaded should discovery reveal documents that support such a pleading.[23] Ms Courtney submits that the issues in the proceedings have in fact beenagreed by the parties: they were set out in the Commissioner's memoranda preparedfor the case management conference convened on 16 June 2015. Mr Kamal did notat that time disagree with the Commissioner's formulation of the issues, his counsel noting only that "the key issue initially must be whether [Mr Kamal], as a matter oflaw, is disqualified under s 280".4[24] Ms Courtney's summary of the issues in the Hillman and GDZ proceedingsread:3 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [13].4 Memorandum of counsel for Mr Kamal dated 15 June 2015, at [4].(i) Whether an adequate notice, as required by s 286(2) of theCompanies Act 1993 ("CA"), of the failure to comply wasserved on the defendant, not less than five working days before this application was filed, and there is a continuing failure to comply.(ii) Whether the Court is satisfied that the defendant is unfit to act as a liquidator by reason of the seriousness of a failure to comply so must make a prohibition order.(iii) Whether any such prohibition order should be for five years, or such lesser period, at the discretion of the Court.[25] Ms Courtney's list of issues in the JDH proceeding was somewhat moreextensive. It read:(1) Whether the Court is satisfied that:(a) The resolution to replace the defendant as liquidator was defeated (uncontested); and(b) Would not have been defeated if Sheppard Ormsby had beenable to participate in the 26 May Creditors' Meeting; and/or thevote(s) cast by related creditors (the MacDonalds) at the 12 JuneCreditors' Meeting were disregarded; and(c) The failure to pass the resolution –(i) is contrary to the interests of the creditors, or a class of creditors, as a whole; and(ii) has prejudiced the Commissioner as a creditor who voted for the resolution, to an extent that is unreasonable having regard to –1. the benefits accruing to the related creditors from the failure to pass the resolution; and2. the nature of the relationship between the related creditors and the company; and3. any other related matter, namely [Mr Kamal] is unfit to act as liquidator by reason of having been convicted of dishonesty offences in the nature of fraud on the revenue, which should prevent him being involved in management of the company and he was, and is, disqualified under s 280(1)(cb) of the Companies Act 1993 from acting as liquidator for the Company.(2) Whether the Court should order that:(a) The vote on the resolution be set aside; and(b) The defendant should be removed as liquidator, and Henry David Levin should be appointed as replacement liquidator; and(c) The defendant should be prohibited from acting as liquidator of any company for a period of five years, or such other period as the Court orders; and(d) The defendant pay the plaintiff's costs.[26] Ms Courtney rejects the contention that the Commissioner's view of the seriousness of Mr Kamal's alleged breaches, and of the prejudice or loss suffered,will or may assist on the issue of whether a prohibition order should be made, and if so for what period. She submits that what is relevant is Mr Kamal's actions; it willbe for the Court to make its own objective assessment of the seriousness of any proven breaches, and the consequences which should follow.[27] Ms Courtney submits that there is no pleaded issue to which the additional discovery sought can be relevant. The present application is, in effect, a fishing expedition by Mr Kamal, designed to unearth information going to theCommissioner's reasons for bringing these proceedings, and with an eye on thepossibility that he may find in those reasons some grounds for an application forjudicial review (presumably of the Commissioner's decision to commence theproceedings).[28] Ms Courtney says that none of that is relevant, and that the orders requested by the Commissioner can be granted (or denied) by the Court without reference tothe Commissioner's motives for bringing the proceedings.Discussion and conclusions on the relevance issue[29] I accept Ms Courtney's submissions on this issue.[30] It will be for the Court to make its own objective assessment of the evidence and submissions, and determine whether grounds exist for making a prohibition order (and if they do, how long the order should remain in force). While the Commissioner will no doubt make submissions on the degree of seriousness of the matters on which she relies, her subjective views on that question before the proceedings were commenced are not in my view capable of adversely affecting theCommissioner's case or supporting Mr Kamal's case. The Commissioner's positionis simply that of a creditor putting certain facts before the Court which she (now) contends justify the making of certain orders. Whether the proved facts do or do not justify the making of those orders will be a matter for the Court to decide on the evidence and submissions, and I am not satisfied that that task will or may be informed by any views the Commissioner may have held before the proceedings were commenced.[31] Looking at the particular documents Mr Kamal is seeking, it is apparent that categories 3 and 4, which are concerned with the Commissioner's decision to commence the proceeding, are in the "fishing" category discussed by Asher J inCathay Pacific Airways Ltd. They relate to a non-pleaded issue (or to non-pleaded issues) which conceivably might be pleaded if discovery were to reveal documents which supported such a pleading or pleadings.[32] As for categories 1 and 2, I am not persuaded that any basis has been made out for the further discovery category sought. Category 1 is extremely broad, and it is not apparent how any internal discussions which may have taken place within the Inland Revenue Department over the appointment of a liquidator of the companies could assist Mr Kamal's case or damage the Commissioner's case.[33] Mr Kamal has not suggested that the Commissioner has failed to disclose documents which are relevant under the tailored discovery orders which have been made. The submission is essentially that the categories ordered were too narrow. Mr Mahuta-Coyle's submissions make it clear that the real target of the additionaldiscovery is documents showing the Commissioner's reasons for commencing theproceedings, but I have held that any such documents have not been shown to be relevant to the issues in the proceedings.[34] The Commissioner has now served her written evidence, and Mr Kamal knows from the statements of claim and the evidence served exactly what case he needs to answer.[35] In the foregoing circumstances I am not persuaded that the additional documents sought are relevant to the issues in the proceeding. The parties have agreed on tailored discovery, and I see nothing to displace the presumption5 created by that agreement that the interests of justice require tailored discovery. Mr Kamal'salternative application for general discovery will accordingly be dismissed.Is there jurisdiction to make the order under r 8.17?[36] While it is not strictly necessary to decide this question, counsel made submissions on it so I will deal with it briefly.[37] I am satisfied that the variation has not arisen out of compliance or attempted compliance with the terms of the tailored discovery order. The variation isconcerned with the Commissioner's discovery, not Mr Kamal's discovery.[38] Nor has there been any change of circumstances which I think justifies reconsideration of the tailored discovery order. I have held that the additional categories of documents sought by Mr Kamal have not been shown to be relevant toan issue in the proceeding. The Commissioner's statements of claim have remainedunchanged since the tailored discovery orders were made, and Mr Kamal has not identified anything else which might reasonably be regarded as a relevant change of circumstances.Result[39] The application is dismissed.[40] Mr Kamal is to pay the Commissioner's disbursements on the application, asfixed by the registrar. Mr Kamal is also to pay costs to the Commissioner on a 2B basis, on the basis that there is to be only one set of costs payable for the three proceedings (one third of what would otherwise have been a 2B award of costs to the Commissioner is to be allocated to each of the three proceedings).5 High Court Rules, r 8.9.Associate Judge Smith