PALMER V COMMISSIONER OF INLAND REVENUE HC AK CIV-2004-404-3420

PALMER V COMMISSIONER OF INLAND REVENUE HC AK CIV-2004-404-3420 31 October 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2004-404-3420BETWEEN GRAHAM ASHLEY ROBERT PALMER Appellant AND THE COMMISSIONER OF INLAND REVENUE Respondent Hearing: 3 October 2005 Appearances: Appellant In Person R J Willox and S C Bolland for Respondent Judgment: 31 October 2005RESERVED JUDGMENT OF RANDERSON JThis judgment was delivered by me on 31 October 2005 at 11.00 am, pursuant to r 540(4) of the High Court Rules Registrar/Deputy Registrar____________________________________________________________________Solicitors: Meredith Connell, PO Box 2213, Auckland G A R Palmer, C/- Auckland Prison, PO Box 50124, AucklandIntroduction[1] The appellant appears in person in support of his appeal against an oral judgment delivered by Judge Joyce QC in the District Court at Auckland on 1 June 2004. [2] The appellant had claimed summary judgment on two cheques issued by the Commissioner upon which payment had been stopped. The Judge accepted the Commissioner's defence that the claim was out of time and that there were no grounds upon which the relevant limitation period could be extended or postponed. On that basis, the Judge dismissed the summary judgment application but also struck out the proceeding even though no application to strike out had been made. [3] The appellant had also filed an application in the District Court for leave to commence his proceeding out of time but he now accepts, as the Judge found, that this application was misconceived, there being no power to extend time relevant to the appellant's claim. [4] The appellant accepts that the Judge was right to dismiss the summary judgment application but maintains the Judge erred in taking the further step of striking out the proceeding.Issues on Appeal[5] The issues raised on appeal can be summarised as follows: a) How is the appellant's claim to be characterised for Limitation Act purposes? b) When did the cause of action accrue? c) When did the limitation period expire? d) Are there any grounds for postponement of the limitation period arising from disability, acknowledgement or part payment, fraud or mistake?e) Did the Judge err in striking out the proceedings or should the Judge have simply dismissed the summary judgment application and allowed the claim to proceed to a substantive hearing, with or without amendment?Factual Background[6] The first of the two cheques was issued by the Commissioner on 5 February 1996 in favour of a company named Machinery Movements and Millrights Ltd for the sum of $29,013.21. It is common ground that the cheque was for a GST refund due to the company. The Commissioner stopped payment on the cheque on 21 February 1996. Assuming a six year time limit from the date on which payment on the cheque was stopped, the proceeding should have been filed by 21 February 2002 if it was to be within time. In fact the proceeding was filed on 9 February 2004, nearly two years after the expiry of the six year period. [7] The second cheque was dated 2 February 1998 and was issued in favour of Paramount Nurseries Limited for $59,422.03. Payment on the cheque was stopped on 16 January 1998. On the same assumptions, the proceeding should have been filed by 16 January 2004 but was about three weeks out of time when filed on 9 February 2004. [8] Within a matter of days after each cheque was stopped, a Deed of Assignment was entered into between the company in question and the appellant. The Deed in relation to the first cheque was dated 26 February 1996 and, in relation to the second, was dated 20 January 1998. It is sufficient if I recite only the first Deed of Assignment because the second was in virtually identical form. In each case the Deeds were signed by the appellant on behalf of both assignor and assignee. The first Deed provided:DEED OF ASSIGNMENTIn the matter of s.7c(b)(ii) of the Cheques Act 1960, and s.180-182 of the Companies Act 1993.And in the matters between MACHINERY MOVEMENTS AND MILLRIGHTS LTD (a duly incorporated company having its registered office at Auckland) Kerrs Rd, Wiri. (transport operators) (Assignor) and GRAHAM ASHLEY ROBERT PALMER Kerrs Rd, Wiri. Company Director. (assignee)That the assignor is owed $29,013.21 (twenty nine thousand and thirteen dollars and 21 cents) by the Inland Revenue Department, by virtue of a signed agreement to issue a GST refund in the said sum, being monies refundable for capital purchases by the assignor. Confirmation of that refund was made by the Inland Revenue Department by the issue of a cheque dated 5 February 1996, cheque number 6838051 030049 0001100 29, drawn on Westpac Bank New Zealand Government Branch, in the sum of $29,013.21.And further that, for reasons unknown, the Inland Revenue Department have reneged upon their agreement and issued a stop payment notice on the said cheque which has been returned by Westpac as an unpaid item on 21 Feb 1996.It is hereby deemed and agreed, that the assignee will purchase the said cheque off the assignor for the full face value, namely $29,013.21; and that the property, title and ownership of the said cheque and the monies owing therein, are, from the moment of execution of this deed, the exclusive and unfettered property of the assignee.That the consideration for the purchase of the said cheque shall be in cash, as is required from time to time by the assignor over the next 90 days from the date of execution of this deed. Dated in Auckland this 26 th day of February 1996 .. .. for an on behalf of the assignor. G A R PALMER assignee witnessStatement of Claim[9] The first cause of action relating to the first cheque recited the Deed of Assignment and asserted that the Commissioner owed the appellant the face value of the cheque in consequence of the Commissioner stopping payment without lawful cause or reason. The statement of claim went on to allege that the Commissioner had breached an agreement with the appellant and his company MachineryMovements and Millrights Ltd to pay the amount of the cheque as GST refundable for capital purchases by the company. The relief sought was an order for specific performance that the Commissioner pay the amount of the cheque together with interest. The same pattern was followed for the second cause of action based on the second cheque.First Issue – How is the appellant's claim to be characterised for Limitation Act purposes?[10] The Judge noted that it was common ground that any action available to the appellant on the cheques was subject to the six year limitation period provided by s 4(1) Limitation Act. Section 4(1) provides:4 Limitation of actions of contract and tort, and certain other actions(1) Except as otherwise provided in this Act [or in subpart 3 of Part 2 of the Prisoners' and Victims' Claims Act 2005], the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say,— (a) Actions founded on simple contract or on tort: (b) Actions to enforce a recognisance: (c) Actions to enforce an award, where the submission is not by a deed: (d) Actions to recover any sum recoverable by virtue of any enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture.[11] On appeal, the appellant submitted that s 4(1) did not apply. Rather, he relied on s 4(9) which relates to claims for specific performance. Section 4(9) provides:(9) This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the corresponding enactment repealed or amended by this Act, or ceasing to have effect by virtue of this Act, has heretofore been applied.[12] I have no doubt that the Judge correctly applied the six year time limit from the date on which the cause of action accrued under s 4(1)(a) Limitation Act being an action founded on simple contract. First, a claim based on a cheque is a claim for a debt due. As the Court of Appeal held in International Ore & Fertilizer Corporation v East Coast Fertiliser Co Limited [1987] 1 NZLR 9, 14, generallyspeaking, bills of exchange are to be treated as the equivalent of cash. Except where there has been a total or liquidated partial failure of consideration, a breach of a background or underlying contract by the plaintiff does not afford the defendant a defence to an action based on a cheque. The holder of the cheque is entitled to liquidated damages based on the face value of the cheque: ss 47 and 57 Bills of Exchange Act 1908. Where a bill of exchange or promissory note is taken as payment for a debt, the cause of action is suspended until the instrument is dishonoured: Laws of New Zealand, Negotiable Instruments, paragraph 191; Bolt Hut Co (Tipton) Ltd v Rowlands Nicholls & Co Ltd [1964] 2 QB 10. [13] Secondly, even if the claim were to be treated as based on an underlying agreement between the Commissioner and the companies to refund the amounts in question, any such agreement must have predated the date of the cheques and the same time limit of six years would apply from the date that agreement was breached. At the latest, any breach occurred when the cheques were dishonoured. [14] The suggestion that the appellant's claim could properly be regarded as one for specific performance is misconceived. The claim is one based on simple contract for recovery of the amount of the cheque or, arguably, for breach of an underlying agreement to repay the amounts in question.Second and Third Issues – When did the cause of action accrue and the limitation period expire?[15] It follows from the foregoing analysis that the cause of action accrued in each case, at the latest, at the dates on which the cheques were stopped namely 21 February 1996 and 16 January 1998 respectively. Unless the limitation period could be postponed, the time limits expired on 21 February 2002 and 16 January 2004.Fourth Issue – Are there any grounds for postponement of the limitation period arising from disability, acknowledgement or part payments, fraud or mistake?Disability[16] In the District Court, the application for leave to bring proceedings out of time recited a number of grounds in support. These included the loss of documents; the companies becoming insolvent and being placed in liquidation; lack of funds to bring proceedings; the imprisonment of the appellant since the beginning of 1999; ill health suffered by the appellant in 1999; the alleged unlawful removal of documents from the appellant's prison cell in 2001 and the fact that the Solicitor-General had not stayed "derivative criminal proceedings brought by the Crown" until March 2001. [17] The Judge found that none of the events relied upon could be treated as falling within the scope of "disability" as that expression is used in s 24 Limitation Act. The Judge also referred to s 2(2) Limitation Act which provides:(2) For the purposes of this Act, a person shall be deemed to be under a disability while he is an infant or of unsound mind.[18] As Tipping J observed in Matai Industries Limited v Jensen [1989] 1 NZLR 525, 540, s 2(2) is a deeming provision and is not couched as an exclusive definition. But I am not persuaded in the circumstances there is any ground to interfere with the Judge's conclusion on this issue. As the appellant freely acknowledged when making his submissions, he was aware of all the essential elements of his claim immediately after the cheques were stopped on the dates in question. That is confirmed by the Deeds of Assignment which he had executed very shortly afterwards in each case. The appellant also accepted that although the cheques were apparently taken away from him in December 1997 and early 1998 respectively, he recovered them in or about November 2001. Despite that, the proceedings were not filed until 9 February 2004 and there does not appear to be any reason why the proceedings could not have been brought within time, that is by 21 February 2002 in the case of the first cheque or 16 January 2004 in the case of the second. The Judgewas correct to find that the appellant was not under any disability under the Limitation Act at material times.Acknowledgement or part payment[19] It seems very little argument was focused on this issue in the District Court. That is indicated by the Judge's observation in the course of his judgment that there was "certainly no question, even if it could somehow be pertinent, of any acknowledgement or part payment by the Commissioner". But before me, Mr Palmer submitted that on 29 October 1999, the Commissioner paid $4,885.15 by way of GST refund to Paramount Nurseries Limited and that in July 1998, the Commissioner made a GST refund of $13,000 to Ferrier Hodgson on behalf of Machinery Movements and Millrights Limited. [20] In his written submissions, the appellant referred to these alleged payments as acts of part performance. Again, that is misconceived. But when s 25(4) Limitation Act was pointed out to him, the appellant modified his submission to contend that the payments amounted to a payment in respect of a right of action to recover a debt or other liquidated pecuniary claim within the meaning of that provision. Section 25(4) provides:(4) Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment: Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.[21] In response, Mr Willox for the Commissioner submitted, that to the extent any payments were made to either of the companies after the date the cheques were stopped, they did not amount to part payment of the cheques but, rather, to amended assessments made subsequently which it was now too late for the taxpayer to dispute. He also submitted there was no evidence of any underlying agreement to refund GST and that, even if there were, the Deeds of Assignment assigned only theright of action on the cheques and did not assign any right to the benefit of any breach of an underlying agreement to refund GST. [22] By consent, a number of further documents were placed before me on appeal relevant to the issue of payment or otherwise. Prima facie, it would appear that the GST assessment underlying the first cheque was later reassessed and reduced to a refund of $5,046.95. The Commissioner says there is no evidence of a payment of $13,000 to Ferrier Hodgson and the amount of $4,885.15 referred to by the appellant appears to relate to a different tax period. But the appellant had not previously had the opportunity to examine and consider many of these documents. Even now, there may be further documents which bear on the issue of subsequent assessments of GST and payment of sums to the companies. [23] On the basis of the material presented at this late stage, I am not persuaded that it would be right to reach any conclusion one way or the other on the possible payment of sums on account of the debts under s 25(4). If, as the Commissioner alleges, any payments were made solely as a result of reassessments, it would obviously be difficult to substantiate that any payment was made on account of the debt due represented by the cheques. But, if as the appellant contends, there was some form of underlying agreement to refund GST then it may be that further discovery and investigation could reveal evidence of part-payment for the purposes of s 25(4), however difficult that might appear at this stage. [24] Although, on their face, the Deeds of Assignment relate to the transfer of rights of action on the cheques, the appellant may still able to obtain an assignment of the rights of the companies to the benefit of any breach of underlying agreements of the kind for which he contends or he may be able to rely on provisions in the tax legislation which permit a shareholder to request the payment of GST to that shareholder. As both companies have since been liquidated, the appellant plainly faces substantial difficulties in that respect.Fraud or MistakeSection 28 Limitation Act provides:28 Postponement of limitation period in case of fraud or mistake Where, in the case of any action for which a period of limitation is prescribed by this Act, either— (a) The action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or (b) The right of action is concealed by the fraud of any such person as aforesaid; or (c) The action is for relief from the consequences of a mistake,— the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it: Provided that nothing in this section shall enable any action to be brought to recover, or enforce any charge against, or set aside any transaction affecting, any property which— (d) In the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know or have reason to believe that any fraud had been committed; or (e) In the case of mistake, has been purchased for valuable consideration, subsequently to the transaction in which the mistake was made, by a person who did not know or have reason to believe that the mistake had been made.[25] The appellant does not rely on mistake. Nor, as the claim is currently pleaded, does he rely upon fraud by the Commissioner or the Commissioner's agent. And, as he himself acknowledged, he was fully aware of all essential ingredients of the cause of action from the time the cheques were stopped. There is therefore no basis upon which he could successfully contend that the right of action was concealed by any fraud on the part of the Commissioner or the Commissioner's agents. The allegations of fraud through wilful concealment referred to in the appellant's submissions are unsustainable. Similarly, his submission that the Judge failed to give proper consideration to "fraud, breach of statutory duty and misfeasance in a public office". None of these matters was raised by the appellant's pleadings.[26] Summarising the position to this point, none of the possible bases for postponement of the six year limitation period are sustainable other than the remote possibility of some form of part-payment being established under s 25(4).Fifth Issue: Did the Judge err in striking out the proceedings or should the Judge have simply dismissed the summary judgment application?[27] The appellant referred to a passage from Todd The Law of Torts in New Zealand (4th Ed) at para 27.5.02, in which it was stated that a limitation period does not prevent a plaintiff bringing an action in the first place. Rather, it provides the defendant with a good defence if the defendant chooses to use it. A limitation period is therefore a matter of procedure. Where the defendant relies on a defence of limitation, Todd notes:The defendant may do this either by pleading the defence, and perhaps, applying for it to be dealt with as a preliminary issue, or in a clear case where it would be a waste of time and money to let the plaintiff go on with the action, by taking out a summons to have the action dismissed as frivolous, vexatious and an abuse of process. However, preliminary determination of the issue is not normally favoured. The Court of Appeal has emphasised that, unless clear cut, limitation defences are best determined at trial on full evidence and that, if leave is required, it should be given in doubtful cases but without prejudice to the limitation point being raised at trial.[28] Ronex Properties Ltd v John Laing Construction Ltd & Ors [1983] 1 QB 398 (CA) supports this proposition which applies equally to claims in tort and contract. In the present case, there was no application before the Court by the Commissioner to strike out the claim. Such an application could have been brought under r 209 of the District Court Rules. On the basis of the argument and evidence presented in the District Court, the Judge was undoubtedly led to the point on the pleadings before him where he considered the Limitation Act defence was so clearly made out that it was a proper case, despite the absence of any application, to strike out the proceeding altogether. But in view of the material presented to this Court which was not before the District Court and my conclusions about the possible application of s 25(4) Limitation Act, I am satisfied that the proper course now is to uphold the dismissal of the summary judgment application but to set aside the order striking out the proceeding. That will enable the appellant to obtain discovery and to have hisproceeding heard substantively if he wishes to do so. He may also wish to modify his statement of claim, subject of course to any limitation period which might apply to any amended claim. [29] The grounds for dismissal of an application for summary judgment (the existence of an arguable defence) differ from the grounds necessary to justify striking out. In the latter, the facts pleaded are generally to be accepted and a striking out is justified only where the cause of action could not possibly succeed:Attorney General v Prince & Gardner [1998] 1 NZLR 262, 267 (CA). Where amendment of pleadings may result in a tenable cause of action, a striking out is generally inappropriate. [30] The appellant should not underestimate the very great difficulties he faces. He must establish there are still sums due to the companies by the Commissioner to which he personally has some entitlement and that any such claims are still within time. But, in my view, justice requires (particularly in the case of a lay litigant) that he be given the opportunity to pursue his claim, however difficult it may be.Result[31] The appeal is allowed in part. The order dismissing the summary judgment claim is upheld but the order striking out the proceeding is set aside. As the appellant is unrepresented, there will be no order for costs. _____________________________ A P Randerson, J Chief High Court Judge