FLYING LAW LIMITED V COMMISSIONER OF INLAND REVENUE HC AK CIV 2005-404-7395

FLYING LAW LIMITED V COMMISSIONER OF INLAND REVENUE HC AK CIV 2005-404-7395 8 May 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-7395UNDER the Companies Act 1993 BETWEEN FLYING LAW LIMITED Applicant AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 8 May 2006 (on the papers) Counsel: S Hunter for applicant T Massyn for respondent Judgment: 8 May 2006 at 17:00JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for costs]Solicitors: Kensington Swan, Private Bag 92 101, Auckland for applicant Inland Revenue Department, PO Box 33 150, Takapuna for respondent[1] The respondent served a statutory demand on the applicant. It was expressed in the following terms:TAKE NOTICE that the COMMISSIONER OF INLAND REVENUE at WellingtonHEREBY DEMANDS payment from you in the sum pf $20,355.64 as detailed in the Particulars of Calculation.FURTHER TAKE NOTICE that if within fifteen working days after the date of service upon you of this notice you neglect to:
Pay the said sum; or
Enter into a compromise under Part XIV of the Companies Act 1993; or
Otherwise compound with the Commissioner; or
Give a charge over your property to secure payment of the debt to the reasonable satisfaction of the COMMISSIONER OF INLAND REVENUE.Particulars of Calculation:Revenues and Periods: Goods and Services Tax periods ended 31 May 2005, 31 March 2005, 30 November 2004, 30 September 2004, 31 July 2004; 31 March 2004, 31 January 2004, 30 November 2003, 30 September 2003, 31 July 2003, 31 May 2003, 31 March 2003 and 31 January 2003. Income Tax periods ended 31 March 2004, 31 March 2003, 31 March 2002 and 31 March 2001 _____________________________________________________________ Amount of Tax assessed $17,172.85 Late Payment Penalties and interest $8,178.75 Payments towards Tax $4,995.96 ________ Balance $20,355.64 Then the Commissioner may petition the High Court of New Zealand at Auckland for an order that FLYING LAW LIMITED be put into liquidation.[2] The applicant applied for an order pursuant to s 290 of the Companies Act 1993 that the statutory demand be set aside. [3] The application was first called on 26 January 2006. At that time, time for compliance with the demand was extended until further order. A timetable for thefiling and service of reply affidavits was fixed. The application was adjourned to 23 February 2006. On 23 February 2006, an extension of time for the filing of reply affidavits was granted. The applicant's counsel was invited to take instructions on whether the appropriate course was an objection or a reference to the dispute resolution process under the Tax Administration Act 1994. The application was adjourned to 30 March 2006. On 30 March 2006, counsel advised that settlement was a distinct possibility and sought yet a further adjournment. The application was adjourned until 28 April 2006. [4] I have been advised by counsel that agreement was reached on 30 March 2006 whereby the applicant agreed to pay the full amount of the statutory demand. Counsel consent on that basis to the application being struck out. [5] The respondent seeks costs calculated as follows:Description Step $Commencement of opposition by respondent Item 2, Schedule 3 2,900.00 Preparation of respondent's affidavits Item 7.1 (but calculated at) 2,900.00 Appearance at four call overs 1,160.00 [6] Counsel for the applicant, in summary, submitted as follows: a) Based on the general costs principle set out in the High Court Rules the respondent is entitled to costs; b) The calculation used by the respondent's counsel, however, is not a correct application of the Third Schedule; c) The appropriate calculation should be:Description Step $Commencement of opposition 2 days 2,900.00 Appearance at four call overs .8 x $1,450 1,160.00 ________Total $4,060.00 =======The Court's approach to applications for costs[7] It is appropriate that I refer briefly to the approach which the Court must take on applications for costs. Rule 46 provides that costs are to be in the discretion of the Court. In Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd CA 296/01 29 September 2002 the Court of Appeal, in noting the Court's over-riding discretion pursuant to r46 said:there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Council. We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.[8] The general principles to be applied in the exercise of that discretion are those contained r47. The first general principle there stated is that the party who fails with respect to a proceeding should pay the costs to the party who succeeds. [9] In Glaister & Ors v Amalgamated Dairies Ltd & Anor [2004] 2 NZLR 606 the Court of Appeal endorsed the proposition it made in the earlier decision inMansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd. It noted that if there was any departure from the costs regime as set out by the High Court Rules, that could only be done on a particularised and principled way. [10] The judgments of Heath J in Keystone Ridge Ltd v City Sales Ltd (High Court, Auckland, M549-im02, 19 July 2002) and Master Lang, as he then was, inInsolar Investments Ltd v Fetherston (High Court, Auckland, M1042-im02, 17 October 2002) emphasise the need for creditors to take care before issuing statutory demands that there is in fact no dispute as to the debt. Service of the statutory demand on a company requires it to work within a very tight timetable imposed by s290 of the Companies Act 1993. If it fails to so act, then the presumption created by 287 applies. [11] In Curly Ltd v Harvey Norman Stores (NZ) Pty Ltd HC AK M29/02 24 May 2002 Chambers J made the obvious comments in relation to a relatively straightforward originating application to set aside a statutory demand, namely that:Band A is appropriate because a comparatively small amount is required to commence a s 290 proceeding[12] The amount claimed for the preparation of opposing affidavits in this case, which has been based on Band B, I accept as appropriate as that is the position that has been adopted by both counsel. An important point of difference, however, relates to the question of whether an allowance should be made under Item 7.1 of the Third Schedule. It is appropriate to note that all of Item 7 is limited to:Preparation for hearing following setting down or direction for trial, if trial does not eventuate.The application to set aside the statutory demand had not been formally set down and had not been given a specific direction for trial. The fact that affidavits were filed is a consequence of these applications being dealt with as originating applications. I see no reason, therefore, to incorporate Item 7.1 in the calculation of costs. [13] The result of the above analysis is that I find the assessment carried out by counsel for the applicant to be the correct one. The appropriate award of costs, in this case, is therefore $4,060.00.Order of the Court[14] I order that the applicant pay the respondent costs in the sum of $4,060.00together with disbursements as fixed by the Registrar. _____________________ JA Faire Associate Judge