EMBORION INTERNATIONAL LIMITED v THE COMMISSIONER OF INLAND REVENUE [2018] NZHC 178

EMBORION INTERNATIONAL LIMITED v THE COMMISSIONER OF INLAND REVENUE [2018] NZHC178 [19 February 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2017-404-2920[2018] NZHC 178BETWEEN EMBORION INTERNATIONAL LIMITEDApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 15 February 2018Appearances: G F Rogers and J G Russell, in person, ApplicantM Deligiannis, K Naik-Leong and V Tuyay for RespondentJudgment: 19 February 2018JUDGMENT OF VAN BOHEMEN JThis judgment was delivered by me on 19 February 2018 at 4.00pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Crown Law, WellingtonCopy to:Ms G F Rogers, AucklandMr J G Russell, AucklandIntroduction[1] Emborion International Ltd (Emborion), challenges tax assessments by therespondent, the Commissioner of Inland Revenue (Commissioner) disallowinginterest deductions and other losses claimed by Emborion. The first case managementconference was convened before me on Thursday 15 February 2018.[2] Emborion filed its Notice of Claim dated 29 June 2016 in the Taxation ReviewAuthority. On 4 October 2016, the Commissioner applied to the High Court, on noticeto Emborion, to transfer Emborion's proceeding to the High Court on the grounds,inter alia, that the proceedings are moderately complex, that they involve a taxarrangement orchestrated by John George Russell, and three other proceedingsinvolving similar issues with companies associated with Mr Russell have beentransferred from the Authority to the High Court.[3] By Minute dated 1 November 2016, Moore J granted the Commissioner'sapplication, noting that no Notice of Opposition to the Commissioner's applicationhad been filed within the prescribed time period. By Minute dated 12 April 2017,Moore J refused Emborion's application to recall his decision of 1 November 2016.Emborion's application followed the filing, out of time, of a Notice of Opposition tothe Commissioner's application.[4] In his Minute of 12 April 2017, Moore J noted:[3] While numerous grounds were advanced by [Emborion] in opposition theessence is that Emborion does not have the financial means to instruct lawyers torepresent it in the High Court. Mr Russell, not being a barrister and solicitor of thisCourt, has no right of audience before the High Court. There are no exceptionalcircumstances which would permit him to represent the respondent. However, if thedispute was to remain before the Authority Mr Russell would be able to represent[Emborion].[5] Later in his Minute, Moore J included the following observation in setting outhis reasons for refusing Emborion's recall application:[12] (e) My orders do not have the effect of denying [Emborion] its ability toadvance its case. The issue raised by Mr Russell is that it will behampered in doing so by reason of impecuniosity.[6] A number of documents were prepared prior to the conference of 15 February2018:(a) On 31 January 2018, Emborion lodged an application dated 30 January2018 and signed by Emborion's sole director, Glenda Frances Rogers,seeking orders that:(i) Emborion's challenge be heard "on the papers" based onsubmissions from Emborion and the Commissioner; and(ii) The Commissioner meet all of Emborion's legal fees and courtcosts.An affidavit sworn by Mrs Rogers and dated 27 January 2018 was lodgedin support of Emborion's application.(b) On 31 January 2018, Emborion lodged a memorandum for the casemanagement conference, signed by Mrs Rogers, setting out Emborion'sviews on various substantive and procedural matters raised in theproceeding and included a proposed timetable on which, thememorandum stated, the parties were in agreement.(c) On 2 February 2018, counsel for the Commissioner filed amemorandum in response to the Emborion memorandum of 31 January2018. In that memorandum, counsel for the Commissioner said, interalia, that:(i) Whether Mrs Rogers has standing to file documents on behalfof Emborion needed to be dealt with prior to the matteradvancing;(ii) The Commissioner opposed Emborion's application to have thesubstantive challenge heard on the papers;(iii) The Commissioner largely agreed with the identification of thematters at issue in the proceeding and the proposed proceduralsteps in Emborion's Memorandum, subject to resolution of thequestion whether Emborion will require legal representation;(iv) The Commissioner also agreed with the timetabling proposed inthe Emborion memorandum, again subject to resolution of thequestion of whether Emborion's legal representation.(d) On 13 February 2018, the Commissioner filed a Notice of Oppositionto Emborion's application of 30 January 2018 that Emborion'schallenge be heard on the papers and that the Commissioner payEmborion's legal fees and court costs. An affidavit sworn on 13February 2018 by John Nicholas Rollo was filed in support of theCommissioner's Notice of Opposition.[7] Mrs Rogers, accompanied by Mr Russell, attended the conference on 15February 2018 on behalf of Emborion. Ms Deligiannis and Mrs Naik-Leong of theCrown Law Office and Ms Tuyay of the Inland Revenue Department represented theCommissioner.[8] It was agreed at the conference that the following required consideration:(a) Representation of Emborion in the conduct of the proceeding and, inparticular, at the substantive hearing;(b) Emborion's application for the matter to be determined on the papers;(c) The matters for consideration under Schedule 5 of the High CourtRules.Representation of Emborion[9] As I said to Mrs Rogers, the Court is willing to be flexible on representationon pre-trial matters such as conferences. However, when it comes to appearing atformal court hearings the situation is very clear – as Mr Russell is well aware. It wasMr Russell's wish to represent a company in proceedings before the High Court thatresulted in the Court of Appeal's decision in Re G J Mannix,1 the leading case on theability of directors and company officers to represent companies in Court proceedings.[10] Re G J Mannix confirmed that a company has no right to be represented in theconduct of a case in Court except by a barrister or solicitor, and that no-one has a rightto appear as an advocate in any New Zealand Court unless admitted as a barrister andsolicitor. The Court of Appeal in Mannix accepted that all Courts have a residualdiscretion to allow unqualified advocates to appear before them and Cooke J identifiedsituations where a Court ought to be prepared to grant audience to non-lawyers "as areserve or occasional expedient". – Ms Deligiannis said Mr Russell's situation didnot fall within any of the exceptions identified in Mannix. Mrs Rogers did not contestthat point. Moreover, as I said to Mrs Rogers, there are further constraints in theLawyers and Conveyancers Act 2006.[11] Mrs Rogers, with input from Mr Russell, referred to the requirements in s 6 ofthe New Zealand Bill of Rights Act 1990 (NZBORA) to interpret legislationconsistent with the rights and freedoms contained in NZBORA and in s 29 ofNZBORA, as far as practicable, to apply the provisions of NZBORA to legalpersons as well as for the benefit of all natural persons. Mrs Rogers also referredto the definition of "person" in s 29 of the Interpretation Act 1999 under which"person" includes a body corporate. Mrs Rogers argued that these provisionssuggested the Court should take a more accommodating view towards directorsrepresenting companies in legal proceedings.[12] Ms Deligiannis observed that in paragraph 23 of Mrs Roger's affidavit swornon 27 January 2018, Mrs Rogers had stated that Emborion had made the decision not1 Re G J Mannix [1984] 1 NZLR 309 CA.to apply to the Court for self-representation. The Commissioner had relied on the thatstatement and for that reason had not prepared full submissions on the question of self-representation. Without retracting the statement in her affidavit, Mrs Rogersconfirmed, in response to my question, that Emborion did seek the Court's leave forthe company to represent itself through Mrs Rogers, its director.[13] I acknowledge that the Commissioner had not prepared full submissions on thequestion of whether Mrs Rogers may represent Emborion before the High Courtbecause of what was said in paragraph 23 of Mrs Rogers' affidavit. TheCommissioner's position, however, was clear. It was that Mrs Rogers could notrepresent Emborion in substantive High Court proceedings having regard to the Courtof Appeal decision in Mannix. For that reason, I consider I have a sufficient basis onwhich to make a decision on the question of representation.[14] The essence of the argument advanced by Mrs Rogers was that,notwithstanding the decision in Mannix, the Court should regard Mrs Rogers, asEmborion's sole director, as being the company. On that basis, Mrs Rogers would notfall foul of the constraints in the Lawyers and Conveyancers Act 2006 becauseMrs Rogers would be Emborion which would be representing itself.[15] I was not persuaded by that argument during the conference and I remainunpersuaded. Cooke J's judgment in Re G J Mannix shows that much the sameargument was made in that case where counsel for Mannix relied on the fact that, as amatter of law a company has the rights and powers of a natural person. Cooke J dealtwith that argument as follows:2Mr Bogiatto placed much stress on the right of an individual to appear inperson, invoking inter alia s 15A(1) of the Companies Act 1955, inserted in1983, which provides "Subject to this Act, a company has the rights, powersand privileges of a natural person ". However, Parliament cannot turn acompany into a natural person. Obviously some activities such as appearingand speaking cannot be performed by something that has no physicalexistence. There would be a possibility of saying that, by analogy, personsidentified with a company on the Tesco3 principle should be treated physicallyas the company. But it would be at best an artificial analogy. Before adopting2 Re G J Mannix [1984] 1 NZLR 309 (CA) at 3123 Tesco Ltd v Nattrass [1972] AC 153 (HL). Earlier in his judgment, at p 310, Cooke J referred tothis decision and Lord Reid's reference to a person who speaks and acts as the company andis its embodiment or mind and identified with it.it, one would have to be satisfied that it accorded with public policy. I thinknot, as a person who is the directing mind and will of a company may be asunskilled in legal matters as any lesser agent.[16] Cooke J's reasoning applies as much today as it did in 1984 and what is saidabout s 15A of the Companies Act 1955 applies equally to ss 6 and 29 of NZBORAand s 29 of the Interpretation Act 1999. Those sections do not make companies intonatural persons. Anyone who appears for a company appears as its representative andnot as the company itself. Accordingly, the rule in Mannix applies, as do theconstraints in the Lawyers and Conveyancers Act 2006 under which, pursuant to ss 6,24 and 27, a person who is not a lawyer may not represent any other person in anyproceedings before any New Zealand court or New Zealand tribunal, unless therepresentation is required or allowed by an Act or regulations or by the court ortribunal.[17] I see no basis, therefore, for departing from G J Mannix and I rule thatEmborion may not be represented in this proceeding except by a barrister or solicitor.This ruling applies to the substantive hearing of Emborion's challenge and to anysubstantive pre-trial hearings.[18] Ms Deligiannis also seeks a ruling on Mrs Roger's standing to file documentsin the proceeding. I am prepared to grant Emborion some latitude on that question inorder to progress pre-trial matters such as discovery, not least because, as I discussbelow, the parties have agreed a timetable that will require action in the coming weeks.However, if Emborion intends to pursue its challenge, it should obtain professionallegal advice as soon as possible. That would also be in its own best interests, not leastso as to avoid the kinds of inaccuracies and misunderstandings contained inMrs Rogers' affidavit and pointed to in the Commissioner's Notice of Oppositionregarding the jurisdiction and competence of the High Court.[19] In addition, as noted above at [9], the Court is prepared to be flexible ininterlocutory matters such as attendance at conferences, but that flexibility can extendonly to directors and officers of Emporion. While no objection was made toMr Russell's participation in the conference on 15 February 2018, if Mr Russell shouldattend any future conferences, he will not be able to address the Court on behalf of thecompany.Emborion's application for the proceeding to be determined on the papers[20] As Emborion's application made clear and Mrs Rogers confirmed both in heraffidavit and at the conference, Emborion's application to have its substantivechallenge to the Commissioner's assessments heard on the papers is made becauseEmborion says it does not have the financial means to pay for legal representation andit is unable to represent itself without the leave of the Court – which I have justdeclined.[21] Whether or not Emborion is as impecunious as it asserts has not beenestablished. As the Commissioner's Notice of Opposition points out, there is noevidence of this other than statements in Emborion's application and Mrs Rogers'affidavit. But whether or not Emporion is impecunious, whether a substantiveproceeding is heard in the usual way in open court or on the papers is not determinedby reference to the financial resources of the applicant. Rather, it is to be determinedby considering the nature and complexity of the issues likely to require resolution,whether viva voce evidence will be called, and whether parties wish to cross-examinewitnesses.[22] The Commissioner's Notice of Objection and Ms Deligiannis in submissionsmade clear the Commissioner's view that it is not appropriate for the matter to be heardon the papers. The Commissioner says this is because of the nature of the transactionwhich is said to constitute a tax avoidance arrangement, administrative law issuesraised by Emborion, including allegations that the Commissioner's decisions todisallow the losses were unreasonable, invalid and unlawful, and that there is a disputeover whether some of the Commissioner's decisions are time-barred. These factorsdemonstrate, the Commissioner says, that the matter is not straightforward, willrequire review of a substantial amount of documentary evidence and assessment oforal evidence and the credibility of witnesses.[23] Mrs Rogers and Mr Russell took issue with aspects of Ms Deligiannis'scharacterisation of the points at issue and in so doing underlined the level ofdisagreement between the parties. This confirmed my preliminary assessment that itwould be a difficult matter for a judge to determine on the papers.[24] What the parties did not dispute, however, is that the hearing is likely to take 5days and that each is likely to call one witness – Mr Russell for Emborion and theinvestigator from the Inland Revenue Department for the Commissioner. In addition,Ms Deligiannis informed me that the Commissioner will likely wish to cross examineMr Russell. All of these factors make it improbable that the matter could besatisfactorily determined on the papers.[25] Accordingly, I dismiss Emborion's application to have the matter determinedon the papers. I also dismiss Emborion's application to have its legal fees and courtcosts met by the Commissioner. Costs on the outcome of the substantive challengefall to be determined once the outcome is known. The fact that the Commissioner hassought and obtained leave to transfer the matter to the High Court is not a reason forthe Commissioner to pay Emborion's legal costs.Schedule 5 of the High Court Rules[26] Despite the disagreements recorded above, the parties are largely in agreementon the matters to be considered under Schedule 5 of the High Court Rules.[27] Emborion's Memorandum of 31 January 2018 and the Commissioner'sMemorandum of 2 February 2018 show that the parties agree on the following:(a) Essential Issues of Fact and Law:(i) Tax avoidance arrangement: paragraphs [2] – [4] of Emborion'sMemorandum reflect the parties' contentions.(ii) Entitlement to losses: paragraphs [5] – [6] of Emborion'sMemorandum reflect the parties' contentions.(iii) Shortfall penalties: paragraphs [7] – [4] of Emborion'sMemorandum reflect the parties' contentions.(iv) Time bar issue: paragraphs [11] – [14] of Emborion'sMemorandum reflect the parties' contentions. In addition, theCommissioner says she is not estopped from reassessing the1992 to 1996 years, nor is she prevented from reassessing yearspreviously subjected to audit.(v) Estoppel: paragraphs [15] – [17] of Emborion's Memorandumreflect the parties' contentions.(vi) Administrative law: paragraphs [18] – [20] of Emborion'sMemorandum reflect the parties' contentions. TheCommissioner identifies two matters she says were not raisedin Emborion's Statement of Position and says Emborion cannotnow raise these as issues under s 138 of the Tax AdministrationAct 1994. These arguments can be dealt with at trial if notresolved earlier.(vii) Pleadings: the parties agree the pleadings are in final form andare as set out in paragraphs [23] – [24] of Emborion'sMemorandum.(viii) Additional parties: the parties agree no additional parties needto be joined.(b) Track: the Commissioner considers the Ordinary Track is appropriate.Emborion does not because it opposed the transfer of the proceedingfrom the Taxation Review Authority. However, the transfer has beenapproved. I rule the Ordinary Track is appropriate.(c) Cost categorisation: the parties agree the proceeding should beclassified as category 2 for the purposes of Rule 14.3 of the High CourtRules.(d) Discovery: While Emborion and the Commissioner disagree on thescope of discovery, as noted below they both agree to a timetable thatincludes discovery and they agree that standard discovery isappropriate.(e) Initial disclosure: the parties agree initial disclosure is not required.(f) Duration of hearing: the parties agree that the likely duration of thehearing is 5 days. Each party anticipates calling one witness.(g) Timetable: the parties agree to the timetable in the schedule to thisjudgment.(h) Evidence: the parties agree evidence should be introduced in the usualway.(i) Hearing date: as agreed at the conference, the matter is set down forhearing starting 4 March 2019 unless an earlier date becomes available.(j) Special resources at hearing: the parties agree no special resources arerequired.(k) Short notice list / back up fixture: the parties agree the proceeding isnot suitable for the short notice list or as a back-up fixture. However,the proceeding could be heard earlier than March 2019 if a suitable datebecomes available after Emborion has prepared, filed and served theagreed bundle of documents, which it is required to do by 15 August2018 in accordance with the timetable in the schedule to this judgment.(l) Settlement conference / alternative dispute resolution: the parties agreethe matter is not currently able to be settled but agree to keep the Courtinformed of progress with any settlement discussions.[28] Leave is reserved to apply if the parties require assistance with any of theprocedural steps in the timetable set out in the schedule to this judgment.______________________________van Bohemen JSchedule: Timetable1. Emborion to file and serve its affidavit of documents for discovery by 30 March2018.2. The Commissioner to file and serve her affidavit of documents for discovery by30 April 2018.3. Inspection to be completed by 15 May 2018.4. Emborion to file and serve any briefs of evidence of witnesses and an index ofdocuments to be included in an agreed bundle of documents by 30 June 2018.5. The Commissioner to file and serve any briefs of evidence of witnesses and anyadditions/amendments to the index of documents to be included in an agreedbundle of documents by 31 July 2018.6. Emborion to prepare, file and serve an agreed bundle of documents by 15 August2018.7. A witness may produce any documents not included in the agreed bundle byattaching the same to the brief of evidence for production in the usual way.8. Emborion to file and serve a synopsis of its submissions 10 working days beforethe hearing date.9. The Commissioner to file and serve a synopsis of its submissions 5 working daysbefore the hearing date.10. The parties are to prepare a list of authorities 3 working days before the hearingdate.