THE COMMISSIONER OF INLAND REVENUE V RON WEST MOTORS (OTAHUHU) LIMITED HC AK CIV 2004-404-005134

THE COMMISSIONER OF INLAND REVENUE V RON WEST MOTORS (OTAHUHU) LIMITED HC AK CIV 2004-404-005134 15 February 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2004-404-005134 CIV 2002-404-002881UNDER the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND RON WEST MOTORS (OTAHUHU) LIMITED Defendant Hearing: 12 February 2008 Counsel: C Wood and R Wallis for plaintiff S Judd for defendant Judgment: 15 February 2008 at 0930JUDGMENT OF ASSOCIATION JUDGE FAIRE [on application that defendant company be put into liquidation]Solicitors: Meredith Connell, PO Box 2213, Auckland for plaintiff Quay Law, PO Box 106 765, Auckland for defendantThe proceedings[1] Two proceedings were listed before me. The parties proceeded in respect of Civ 2002-404-2881. In that proceeding the plaintiff seeks an order that the defendant company be put into liquidation and for costs. The grounds advanced in support of that proceeding are that the defendant has failed, or neglected, to comply with a statutory demand served on it for $78,734.35. [2] The plaintiff relies on ss 241(2)(c)(iv), 241(4), 287 and 298 of the Companies Act 1993. The plaintiff gives credit for a payment made subsequent to the service of the statement of claim of $39,385.66. It says it has not been paid the balance of the debt which is due, namely $39,348.69. [3] An affidavit confirming the amount outstanding was filed on the day of the hearing.Abridgement of time for advertising[4] The plaintiff did not strictly comply with r 700I of the High Court Rules. In particular, advertisement of the hearing of this proceeding was placed in The Gazetteless than seven clear days before the hearing. Advertising otherwise complied with r 700I. Mr Wood sought an abridgement of time. Arrangements were made for Mr Judd to obtain instructions. He later confirmed that his client did not oppose an abridgement of time. No party present signalled any knowledge of creditors who might have been prejudiced by a lack of formal compliance with r 700I. On that basis, in reliance on r 5, I abridge the time for advertising and an order to that effect will appear at the conclusion of this judgment.Consent to act as liquidator[5] The plaintiff produced a consent to appointment as liquidator signed by David Stewart Vance and Henry David Levin which contains an appropriate certificate in compliance with s 280(4) of the Companies Act 1993.The grounds in opposition to the appointment of a liquidator[6] A statement of defence has been filed. Mr Judd refined the grounds for opposing the appointment of a liquidator to the following: a) The debt claimed by the plaintiff is disputed. As the plaintiff has assessed other people for the same tax liability, the Court cannot be satisfied that the debt claimed is owed to the plaintiff by the defendant; b) If no prospective due date was fixed by the plaintiff when the assessment was made in respect of 10% additional tax, then that portion of the sum now claimed, which represents additional tax, is not payable; and c) Moneys held by the Registrar of the Court must be paid to the plaintiff to discharge the debt referred to and claimed as unpaid in this proceeding. It is claimed that the plaintiff is bound by the doctrine of election and cannot assert that the moneys held in Court are not held as security for the defendant's indebtedness as claimed in this proceeding.The Court's approach to applications to appoint liquidators[7] Section 241 of the Companies Act 1993 gives the Court a discretion to appoint a liquidator if it is satisfied that the company is unable to pay its debts. Section 287 of the Companies Act 1993 provides that:unless the contrary is proved and subject to s288 of this Act, a company is presumed to be unable to pay its debts if – (a) the company has failed to comply with a statutory demand [8] The approach that the Court should take in considering an opposed application to appoint a liquidator has been examined in a number of authorities. InBateman Television Limited (in liq) & Anor v Coleridge Finance Company Ltd[1971] NZLR 929 (PC) the Privy Council referred to the general rule that no order will be made on a petition founded on a debt which was genuinely disputed. To apply to wind up a company in such a circumstance is an abuse of the Court's process. The Court has an inherent jurisdiction to prevent such an abuse of process. The position has been considered in a number of cases both in relation to opposed applications to wind up and in respect of applications for orders restraining advertising and staying proceedings. Exchange Finance Co Ltd v Lemington Holdings Ltd [1984] 2 NZLR 242; Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; Edge Computers Ltd v Colonial Enterprises Ltd 9 PRNZ 621. [9] From the authorities I extract the following specific principles which are applicable to such applications: a) A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up; b) In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court; c) The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available; d) The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.Details of the debt[10] The debt which is included in the statement of claim in the liquidation proceeding is calculated as follows:Income Year Core assessment of income tax 10% additional tax Misc credit Balance of debt owing1982 $32,265.00 $3,226.50 $36.98 $35,454.52 1983 $12,548.70 $1,254.87 $13,803.57 1984 $26,796.60 $2,679.66 $29,476.26Total $71,610.30 $7,161.03 $36.98 $78,734.35[11] The plaintiff gives credit for having received a payment from the High Court in relation to the proceeding Civ 2004-404-5134 of $39,385.66. The plaintiff applied that as follows:(1) $16,132.50 to 1982; (2) $6,274.35 to 1983; (3) $16,978.81 to 1984.[12] The plaintiff now claims that the balance of the debt, namely $39,348.69 is due and payable and has not been paid. [13] In addition the plaintiff says that costs ordered by Simon France J on 14 December 2005 in the sum of $8,120.00 and costs ordered by Associate Judge Sargisson on 21 July 2005 in Civ 2004-404-5134 of $3,500.00 and costs ordered by myself in a judgment of 15 May 2006 totalling $9,010.00 have not been paid. In short, an additional $20,630.00 is due and owing to the plaintiff in respect of the orders just mentioned. [14] It will be appreciated from the summary set out above that the debt arises from income tax assessments made by the plaintiff in respect of the defendant for the income years 1982, 1983 and 1984.[15] There have been a number of Court decisions and decisions of the Taxation Review Authority in respect of the defendant's liability for income tax for the 1982, 1983 and 1984 years. It is not necessary that I review all of that history because Mr Judd put the defendant's position as follows:a. Although the defendant does not agree with the decisions that went against it in the TRA, High Court and Court of Appeal, it accepts that it is no longer able to challenge the assessments. The Court of Appeal has held that the Commissioner is no longer able to re-open a Track A Assessment once the assessment is in the hands of the TRA and that is the position with the assessments in the present case. b. Therefore, the defendant does not challenge the validity of the assessments. The assessment, as an assessment, is valid and indisputable as submitted by the plaintiff. Nevertheless, the defendant challenges the debt on which this winding up proceeding is based. The question of whether the defendant should be liquidated based on the alleged debt is a different question to whether the assessments are valid. The former does not follow automatically from the latter. c. The plaintiff, like any other creditor, is only entitled to recover a debt once. In the present case the plaintiff has assessed the same income that has been assessed to the plaintiff under Track A to other people under Tracks B, C and D. The plaintiff has not withdrawn those assessments. Therefore the plaintiff is demanding that others pay the same tax that he claims the plaintiff must pay. It may be that some of those under other Tracks have already paid some of the tax. d. If the plaintiff could prove to the defendant that only the defendant is being asked to pay this tax and no one else has already paid it, then the defendant would accept liability for the tax and pay it. Unfortunately, the present position is not at all clear. The plaintiff chose to assess multiple parties for the same income under Tracks A-E as acknowledged by the plaintiff at paragraphs 5.15 and 5.16 of his submissions. By adopting this approach the plaintiff has created confusion and the risk of double or multiple taxation of the same income. e. It is not appropriate to allow the plaintiff to proceed to liquidate the defendant based only on the assessment of tax when the position with the other people who have been assessed with the same income is unclear. These are factual issues that cannot be resolved without a trial.[16] I shall now deal specifically with each of the grounds raised by Mr Judd, which I have recorded in [6] of this judgment.Has the plaintiff collected the tax claimed from taxpayers other than the defendant?[17] The evidence provided to me, and confirmed in counsel's submissions, is that assessments made against the taxpayers involved in a Track C and Track D assessment in this case have been withdrawn. The question of whether or not there may have been a payment by taxpayers other than the defendant in respect of the tax claimed in this case requires a consideration of whether there has been any assessment and payment by the taxpayers who have been assessed in this case as Track B taxpayers or Track E taxpayers. Again, the specific issue is whether there have been assessments and payments by Track B and Track E people in respect of that portion of the income which was assessed to the defendant for the 1982, 1983 and 1984 years.Has there been an assessment of a Track B taxpayer and a payment by a Track B taxpayer in this case?[18] There is raised, in the papers, the possibility that some of the income may have been assessed to former shareholders of the defendant company, namely Dawn Patricia West and Anthony Stephen Radisich. On behalf of the plaintiff, Mr BN Clearkin, the public servant employed by the Inland Revenue Department as an investigator and authorised to give evidence on behalf of the Commissioner, has given evidence to the effect that he has checked the computer records for the income years ended 31 March 1982, 1983 and 1984 for Mrs West and Mr Radisich. He has confirmed that there is no data available for either of them for the 1982 financial year. He said that Mr Radisich was assessed for income tax for 1983 and 1984, but that it was not for income from Ron West Motors (Otahuhu) Limited, the defendant in this proceeding. He has confirmed that Mrs West has not been assessed for the same income as assessed to the defendant for either 1983 or 1984. Mr Russell has contested that position but has advanced no specific evidence that Mr Clearkin's account is incorrect. For example, neither Dawn Patricia West nor Anthony Stephen Radisich have filed affidavits. No documentation has been advanced to me to suggest that the position is anything other than that as disclosed by Mr Clearkin's examination of the Commissioner's records. Mr Russell was given an opportunity offiling affidavits before the hearing of this proceeding but did not avail himself of that opportunity. [19] The result is that there is no material before me on which I could find that there has been a Track B assessment in respect of the tax concerned in this case. And, further, it follows there is no evidence of any taxpayer having paid, in respect of this tax, pursuant to the Track B assessment. [20] So far as the Track E position is concerned, it was common ground with counsel that that matter was currently before the Taxation Review Authority and, indeed, I was told that Mr Russell was giving evidence before the Authority at the same time as this case was being argued before me. No suggestion is made anywhere in the papers that Mr Russell has made any payment, or that anyone else under Track E has made any payment, in respect of this tax. [21] Accordingly, I conclude that there is no factual foundation for the proposition which was advanced in opposition to the making of the order and which I have referred to in a) of this judgment. [22] The Commissioner's position is that he does not concede that there is any double taxation. He says, however, that there is the current opportunity to raise the matter in the challenge proceeding currently before the Taxation Review Authority, ie as a Track E case. He says that is the appropriate place to deal with it, if it exists. The authority for that submission is the judgment of the Court of Appeal in Wire Supplies Ltd & Ors v Commissioner of Inland Revenue (2007) 23 NZTC 21,404. At [129] the Court, after discussing the earlier authorities, concluded that where a later track assessment is made in circumstances where an earlier track assessment has already been before the Taxation Review Authority, the only party who may seek to invoke an inconsistent argument based on s 99(4) of the Income Tax Act 1976 is the party involved in the later Track assessment. I accept that position. Indeed, it is the reason for the concession made by Mr Judd and which I have recorded in [15] of this judgment and in particular under (a). It is the answer to any question of possible double taxation arising out of a Track E assessment in this case. More importantly,having regard to Mr Judd's submission, however, there is simply no allegation anywhere that the Commissioner has collected this tax from a Track E taxpayer. [23] The Commissioner's pursuit of the debt in this case is based on a desire to obtain payment of the outstanding debt. No matter under this ground has been advanced to me that would justify my setting the proceeding aside as an abuse of process. That position was considered by Wild J in Apple Fields Ltd v The Trustees Executors and Agency Co of New Zealand Ltd (1999) 8 NZCLC 262,008. [24] The above emphasises the conclusion I have reached and that is there is no foundation for refusing to make an order placing this company into liquidation based on the first ground advanced by Mr Judd.Additional tax[25] I consider the second ground advanced by Mr Judd. [26] The issue raised is whether there is a proper basis for the imposition of a one- off additional tax in this case. It has been imposed on the amounts assessed and due for the 1982, 1983 and 1984 years. The detail is set out in [10] of this judgment. The total claimed is $7,161.03. The claim is based on s 398 of the Income Tax Act 1976. That section has been the subject of amendment. The relevant provision applying to this case provides as follows:398 Additional tax to be charged if default made in payment of tax(1) Subject to this section, if any tax remains unpaid at the expiration of one month after the due date thereof (whether already assessed or not) or after the date of demand, as the case may be, 10 per cent of the amount of the tax unpaid shall be and be deemed to be added thereto by way of additional tax, and shall be payable accordingly. (2) [New date for payment] In any case in which an assessment is not made until after the due date of the tax, or is increased after the due date of the tax, and the Commissioner is satisfied that the taxpayer has not been guilty of wilful neglect or default in making due and complete returns for the purposes of that tax, the Commissioner shall in his notice to the taxpayer of the assessment or amended assessment, or in any subsequent notice, fix a new date for the payment of the tax or of the increased, as the case may be, and thedate so fixed shall be deemed to be the due date of that tax or increase for the purposes of subsection (1) of this section. (2A) [Tax not assessed] Notwithstanding subsection (2) of this section, subsection (1) of this section shall apply in any case where the Commissioner had notified the taxpayer in advance of the due date, either generally or specifically, that subsection (1) of this section shall apply in respect of income tax as calculated by the taxpayer, or in respect of an amount of income tax estimated by the taxpayer, in either case in accordance with the procedures prescribed by the Commissioner. [27] Mr Judd submitted, in reliance on the judgment of Baragwanath J in Withey & Ors v Commissioner of Inland Revenue (No 2) (1998) 18 NZTC 13,732 that notification to the taxpayer of the due date for payment was required before the additional tax under s 398 could be recovered. [28] The evidence initially placed before me did not specifically address this issue. Mr Wood sought my leave to read an affidavit produced in the 1989 proceeding involving this defendant from Mr PA Blakeley. Mr Judd did not oppose that application. The affidavit produces a computer schedule which counsel interpreted as evidencing the date of notification. [29] This argument, however, is a rerun of the matter that has already been the subject of a ruling by Associate Judge Sargisson. There Her Honour was dealing with an application filed in respect of the proceedings issued for 50% of the assessed tax for the years concerned. The proceedings were issued in 1989. Her Honour, however, was required to specifically rule on whether proper notice had been given to the taxpayer so that s 398 of the Income Tax Act 1976 could be applied. The Associate Judge at [51](c) of her judgment identified the issue and concluded at [53] that prospective due dates were actually included in the notices of assessment and that, therefore, there was no possibility that the additional tax had been wrongly imposed. That ruling has not been challenged and overturned. No new material has been put before me to suggest that I should come to any conclusion different from that arrived at by Associate Judge Sargisson. I reject this ground. It provides no basis for declining to place the defendant company into liquidation.[30] I now consider the third ground advanced by Mr Judd.Should moneys held by the Registrar of the Court be paid to the plaintiff in discharge of the debt now claimed by the plaintiff?[31] The defendant seeks to rerun an argument which I have already ruled on in a judgment delivered on 15 May 2006. In that judgment I ordered that:the moneys which were held in the 1989 proceedings, pursuant to an order of Master Gambrill on 13 September 1989, shall be paid by the Registrar to the plaintiff.The fact that that may not have happened does not seem to me to alter the fact that a Court ruling has been given in respect of that fund. [32] I would normally not have allowed Mr Judd to proceed with the argument. However, he made the submission that Associate Judge Sargisson had finally determined the 1989 proceeding and that I had mistakenly assumed she had not. His submission arises from the fact that Associate Judge Sargisson, in the order she made, said that:the Commissioner has leave to withdraw the winding up proceeding – (that is the 1989 proceeding).What followed, however, and which is recorded in my judgment, indicates that that step, in fact, was understood by all concerned to mean that there would have to be a listing of the proceeding at which the formal application for leave to withdraw would be considered. [33] The reason why the parties proceeded on that basis is because the proceeding involved an application to liquidate a company. Such an order will only be made in open Court so that any interest party can make appropriate application, either in support or in opposition, to it. A creditor, for example, may wish to apply pursuant to r 700X to be added or substituted. A plaintiff who wishes to discontinue is expressly required pursuant to r 700YA to obtain the leave of the Court. The authors of McGechan on Procedure at hr700YA.01 note that the requirement to obtain leave to discontinue was inserted to avoid the effect of what happened in Bank of NewZealand v Rada Corporation Limited [1989] 1 NZLR 750. I conclude, therefore, that what Associate Judge Sargisson intended by her order and what the parties accepted by virtue of the subsequent steps taken are all consistent with there not having been a formal conclusion of the 1989 case by the delivery of the judgment of Associate Judge Sargisson on 21 July 2005. It follows, therefore, that I was not mistaken in the summary I made of the circumstances and, therefore, the basis upon which I made the orders I did in the judgment of 15 May 2006. [34] Counsel informed me that my judgment was the subject of an appeal. However, that was abandoned because apparently there was an acceptance of a lack of jurisdiction. No alternative challenge to the judgment has been made pursuant to s 26P of the Judicature Act 1908 and r 61C of the High Court Rules. [35] The position advanced by the defendant in respect of this ground, even if there was some proper basis for overturning my judgment, is, at best, an attempt to take advantage of what may have been a mistake when the application was prepared and placed before Associate Judge Sargisson for her determination. I make that observation, although not strictly necessary for this judgment, because it is clear to me that the fund that was held in Court pursuant to Master Gambrill's order is not the defendant's money and, in fact, there can be no entitlement to it arising from Master Gambrill's order. The money, by Master Gambrill's order, belongs to the successful party. [36] As a result of the conclusions I have reached under this ground, there is, in fact, no money held in Court which is the defendant's money and which can be applied in satisfaction of the debt which is the subject of the application to place the defendant into liquidation.Adjournment of the hearing[37] Mr Judd requested that I specifically rule on the actual sum that is currently due in an interim judgment and that I adjourn the proceeding for call. The purpose of the short adjournment is to enable the defendant to make payment. Mr Wood did not oppose my proceeding on that basis. Accordingly, I rule that the sum claimed,$39,348.69, is currently due. In addition, there are the costs that I have referred to in [13] of this judgment which have not been paid, namely, $20,630.00. Accordingly, to avoid the making of an order placing the company into liquidation and appointing a liquidator there must be paid the sum of $59,978.69. It would, of course, be sensible if counsel could agree on the question of costs although I indicate in this judgment that the outstanding cost issue would not justify my appointing a liquidator if they had not been paid. The defendant must realise that at the adjourned hearing, if the sum of $59,978.69 has not been paid and counsel for the plaintiff certify that fact to me, an order will be made placing the defendant company into liquidation and appointing David Stewart Vance and Henry David Levin as liquidators. [38] Accordingly, having regard to the reasons set out in this judgment, I adjourn the application to place the defendant company into liquidation and to appoint a liquidator to the Liquidation List at 11.45am on 21 February 2008. Costs, in the meantime, are reserved. _____________________ JA Faire Associate Judge