COMMISSIONER OF INLAND REVENUE V SABRE INVESTMENT TRUST HC WN CIV-2006-485-315

COMMISSIONER OF INLAND REVENUE V SABRE INVESTMENT TRUST HC WN CIV-2006-485-315 16 June 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-315BETWEEN COMMISSIONER OF INLAND REVENUE Plaintiff AND SABRE INVESTMENT TRUST Defendant Judgment: 16 June 2006JUDGMENT AS TO COSTS OF ASSOCIATE JUDGE D I GENDALL[1] On 17 February 2006 the plaintiff filed a statement of claim seeking that the Sabre Investment Trust, the defendant, be placed into liquidation pursuant to s 17A Judicature Act 1908. The defendant was said to be indebted to the plaintiff for goods and services tax for the periods ending 31 March 2003 and 30 September 2003, totalling $88,847.27. [2] Samantha Verney Gilchrist ("Mrs Gilchrist") was served with the proceedings as a trustee of the defendant on 28 February 2006. [3] Mrs Gilchrist filed a statement of defence on 13 March 2006. [4] Earlier, on 5 December 2005, Mrs Gilchrist had been served as a trustee with a s 289 Statutory Demand. Brent John Gilchrist ("Mr Gilchrist") had also been served with a s 289 Statutory Demand as a trustee of the defendant on 7 December 2005. Neither Mrs Gilchrist nor Mr Gilchrist took any steps to apply to set aside the statutory demands. Nor did Mr Gilchrist taken any steps to defend the liquidationproceedings – though it is not clear whether he may have been served with these proceedings. [5] In any event, at the second call of this matter on 1 May 2006 the plaintiff withdrew the proceedings. The plaintiff maintains it did so for reasons other than those specified in the statement of defence filed by Mrs Gilchrist. He contends the proceedings were withdrawn on the basis of information he had then acquired as to the circumstances and financial position of the parties involved. [6] Mrs Gilchrist now seeks full solicitor and client costs totalling $4,914.38 from the plaintiff. [7] The plaintiff opposes any order of costs and submits that costs should lie where they fall. [8] As I have noted, this proceeding sought to obtain a winding up order for the defendant Sabre Investment Trust. The Trust is an unincorporated body of persons, constituted on 1 September 1999. The trustees of the defendant were until recently Mr and Mrs Gilchrist. [9] Apparently Mrs Gilchrist had resigned her position as a trustee of the defendant trust in December 2002. The plaintiff in turn received notification of Mrs Gilchrist's resignation on 25 August 2003 – this was acknowledged by the plaintiff by facsimile dated 29 August 2003 to Mr Gilchrist. [10] In essence, Mrs Gilchrist's submissions in support of her costs application, as I understand them, are along the following lines: a) Mrs Gilchrist resigned as a trustee of the defendant in December 2002 and the plaintiff was aware of that fact on 25 August 2003. Therefore Mrs Gilchrist has been put to unnecessary legal expense in defending these proceedings which have been "brought against her".b) As Mrs Gilchrist was no longer a trustee of the defendant trust she could not by definition be included as part of an unincorporated body of persons. c) Therefore the proceedings were ill-conceived and this provides evidence that the plaintiff in pursuing all legal avenues available to it is choosing to harass both Mrs Gilchrist and Mr Gilchrist. d) It is appropriate for the Court to consider granting full solicitor and client costs here because it was improper and unnecessary for the plaintiff to include Mrs Gilchrist as a defendant trustee. e) Mrs Gilchrist was obliged to obtain counsel to defend the proceedings and to consult a tax specialist and an Auckland barrister for advice. [11] Despite these contentions put forward on Mrs Gilchrist's behalf, it seems that there is no dispute as to the $88,847.27 goods and services tax liability of the defendant trust to the plaintiff. Mrs Gilchrist's complaint appears to be that as she had resigned as a trustee of the defendant she should not have been either served with this proceeding or required to defend it as a proceeding "brought against her". [12] Having considered the submissions on costs filed by counsel for the plaintiff on 29 May 2006 and the memoranda as to costs filed on behalf of Mrs Gilchrist on 18 May 2006 and 8 June 2006, I take the view that Mrs Gilchrist's arguments here are misplaced. [13] This proceeding was brought against the defendant, the Sabre Investment Trust. It is not a proceeding "brought against" Mrs Gilchrist. Indeed, Mrs Gilchrist acknowledges that she was a trustee of this trust although she maintained she resigned in December 2002. No dispute as to the amount claimed for goods and services tax from the defendant is made. [14] Although Mrs Gilchrist may have resigned as a trustee of the defendant trust in December 2002, s 57 Goods and Services Tax Act 1985 ("the Act") which dealswith the liability of members of unincorporated bodies states that she remains liable for any goods and services tax obligations incurred whilst she was a trustee and until such time as she notifies the Commissioner of Inland Revenue that she is no longer a trustee. [15] An unincorporated body is defined in s 2 of the Act and includes the trustees of a trust. [16] Section 57(3) of the Act provides:Despite this section, a member is jointly and severally liable with other members for all tax payable by the unincorporated body during the taxable periods or part of taxable periods as the case may be, the person is a member of the body, even if the person is no longer a member of the body.[17] Section 57(3B) of the Act further provides:For the purposes of subsections (3) and (3A) a member does not stop being a member of the unincorporated body until the date on which the Commissioner receives written notice of a change in membership of the body.[18] The plaintiff has acknowledged that the Department received notification of Mrs Gilchrist's resignation on 25 August 2003. It follows as I see it that she is therefore jointly and severally liable for any goods and services tax owed by the defendant up to that date. According to the plaintiff the amount outstanding for goods and services tax as at 25 August 23 (including interest and late penalties) relating to the March 2003 GST return was $46,898.88. [19] It follows, as I see it, that even though the current proceeding was issued against the Sabre Investment Trust as defendant, Mrs Gilchrist remained personally liable for well over one-half of the amount claimed against the trust in this proceeding. [20] That said, in my view the arguments put forward by Mrs Gilchrist in support of her application for costs here must fall away. There is nothing before the Court to support her suggestion that the plaintiff is harassing her or Mr Gilchrist. Rule 476C does not apply here as it is not the defendant who is seeking costs from the plaintiffon the discontinuance. And I am satisfied that, as the GST debt owing by the defendant appears to be undisputed, the plaintiff acted reasonably in commencing this proceeding and taking his decision to discontinue the proceeding – seeMcGechan on Procedure HR476C.01 and Oggi Advertising Ltd v McKenzie (1998) 12 PRNZ 535. [21] I note too that the Sabre Investment Trust, the defendant here, is not itself seeking costs. [22] Although the current proceedings were not brought against Mrs Gilchrist in her personal capacity, I am satisfied that as a trustee of the defendant for a significant part of the operative period, it was not inappropriate for these proceedings to be served upon her. [23] That she might then have chosen personally to file a statement of defence was a matter for her. It is difficult to understand why she chose to do so. As I understand it, her complaint was simply that as she saw it, service on her was defective. I repeat that the defendant was the Sabre Investment Trust and no substantive defence to the plaintiff's proceeding was effectively put forward on behalf of the Trust. [24] Under all the circumstances here I am satisfied that it is not appropriate for an award of costs to be made in favour of Mrs Gilchrist. [25] Costs are to lie where they fall. There will be no order made as to costs._______________________ Associate Judge D I GendallSolicitors:Michelle Anne Ross, Inland Revenue Department, Wellington Hughes Robertson, Wellington for Mrs Gilchrist Delivered at 11.00am on Friday 16 June 2006.