JAYASHREE LTD v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 2723

JAYASHREE LTD v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 2723 [2 October 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-000855[2023] NZHC 2723UNDER Part 20 of the High Court Rules 2016IN THE MATTER of an appeal of a District Court decisionBETWEEN JAYASHREE LIMITEDAppellantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 19 September 2023Appearances: M Karmarkar (Director of the Appellant)K Naik-Leong and C Russell for the RespondentJudgment: 2 October 2023JUDGMENT OF GORDON JThis judgment was delivered by meon 2 October 2023 at 11 am, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors: Crown Law, WellingtonCopy to: M Karmarkar[1] Madhav Karmarkar, the sole director and shareholder of the appellant,Jayashree Ltd (Jayashree), has filed an appeal for Jayashree against a decision of JudgeAA Sinclair in the District Court at Auckland issued on 23 March 2023 granting anapplication by the respondent, the Commissioner of Inland Revenue (Commissioner),to strike out a statement of claim filed by Mr Karmarkar. The strike-out applicationwas on the basis the claim disclosed no reasonably arguable cause of action againstthe Commissioner, by either Mr Karmarkar or Jayashree.1[2] Mr Karmarkar has filed an application for Jayashree seeking leave for him torepresent Jayashree at the hearing of the appeal (the Application). Mr Karmarkar waspermitted to appear and make submissions on the Application.[3] Jayashree's application is opposed by the Commissioner. The Commissioner'sposition is that Jayashree cannot establish the sort of exceptional circumstances (orbring itself within the "reserve or occasional expedient" discretion) that might justifya departure from the well-settled rule in Re G J Mannix, that a company has no rightto be represented in the conduct of a case in court except by a barrister, or by a solicitorin courts or proceedings where solicitors have the right of audience.2 TheCommissioner says this extends to the filing of documents, including the proposedappeal on behalf of Jayashree filed by Mr Karmarkar.3Background[4] In July 2022 Mr Karmarkar filed a notice of proceeding and statement of claim(the Claim) in the Auckland District Court. The proceedings were brought byMr Karmarkar as plaintiff in his own name against an accountancy firm, QualityBusiness Solutions Ltd (QBSL) as first defendant and the "Internal RevenueDepartment" as the second defendant.1 Karmarkar v Quality Business Solutions Ltd [2023] NZDC 5239.2 Re G J Mannix [1984] 1 NZLR 309 (CA) at 310–311.3 The Commissioner refers to High Court Rules 2016, r 5.36 and Lawyers and Conveyancers Act2006, ss 6, 24 and 27. The Commissioner also refers to Lynskey v Dorley Holdings Ltd (1988)2 PRNZ 637 (HC) as authority for the proposition that where proceedings are commenced by acorporation, they may only be filed by a solicitor on behalf of the corporation.[5] The Claim sought $50,000 compensation from the Inland Revenue Department(Inland Revenue) "for stress caused by habitually wrong scrutiny".4[6] The Claim included the following allegations which Mr Karmarkar repeats inthe Application.(a) Mr Karmarkar is responsible for filing GST returns for all thecompanies he identifies of which he was director, including Jayashree,since their inception.(b) Mr Karmarkar diligently filed GST returns on time as per the treatmentof GST for residential rental income and expenses based on the advicegiven by QBSL.(c) All the GST returns were scrutinised by Inland Revenue twice in theyears 2010/2011 and 2018/2019.(d) Suddenly Inland Revenue advised Mr Karmarkar that he could nolonger treat residential rental income and expenses for GST accounting.(e) Mr Karmarkar felt "humiliated, inconvenienced and like a criminal andwas stressed beyond imagination".(f) Mr Karmarkar "felt cheated and was aghast that all his sincere effortsto file proper gst on time were completely lost, because of erroneousadvice of Quality Business Solutions Limited and habitually erroneousscrutiny by IRD of New Zealand".[7] Mr Karmarkar is not GST registered. As is apparent, the Claim arises out ofscrutiny of Jayashree's GST returns. No pleading relating to Jayashree or anypurported loss it suffered were included in the Claim.4 The Claim sought a similar amount of compensation from Quality Business Solutions Ltd. Thatcompany will be mentioned in passing as part of the background context only.[8] The Commissioner filed an interlocutory application seeking an order strikingout the Claim on the grounds that the Claim disclosed no reasonably arguable causeof action against the Commissioner. One of the grounds was that Mr Karmarkar wasnot the correct plaintiff; Jayashree was the correct plaintiff.[9] After the Claim was filed the Commissioner issued a notice of proposedadjustment to Jayashree, initiating the disputes procedure under Part 4A of the TaxAdministration Act 1994 (TAA). Following this, Jayashree issued a notice ofresponse.[10] On 23 November 2022 a Judge of the District Court issued a minute grantingMr Karmarkar leave to join Jayashree (and another of his companies) as additionalplaintiffs. The Court directed that these companies were to file amended pleadingswithin 14 days of the minute. No amended statement of claim was filed.[11] Judge Sinclair heard the strike-out application on 14 March 2023 and issuedher judgment on 23 March 2023. The Judge held that the Claim disclosed noreasonably arguable cause of action against the Commissioner by either Mr Karmarkaror Jayashree. Further, she considered the defects in the Claim were not defects thatcould be cured by the filing of any amended statement of claim.[12] On 13 April 2023 Mr Karmarkar filed a Notice of Appeal in this Court. On thecover page he named himself as the "plaintiff". In the body of the Notice of Appeal itis stated that "the applicant Madhav Hari Karmarkar and Jayashree Limited, will on15th April 2023 apply to the High Court to appeal" against Judge Sinclair's decision.[13] On 11 May 2023 counsel for the Commissioner filed a memorandumsubmitting the Court should join Jayashree as an appellant, and remove QBSL as arespondent, and Mr Karmarkar should either engage counsel for Jayashree or seekorders from the Court allowing him to represent Jayashree.[14] On 23 May 2023, at the first call of the appeal, Mr Karmarkar accepted thoseorders should be made including his removal as an appellant and they were madeaccordingly.Legal principles[15] The "Mannix" rule is that a company has no right to be represented in theconduct of a case in court except by a barrister or solicitor of the High Court. However,in Mannix Cooke J observed that the courts maintain a residual discretion to allowunqualified advocates to appear before them. Justice Cooke said:5In general, and without attempting to work out hard-and-fast rules,discretionary audience should be regarded, in my opinion, as a reserve oroccasional expedient, for use primarily in emergency situations when counselis not available or in straightforward matters where the assistance of counselis not needed by the Court or where it would be unduly technical orburdensome to insist on counsel. Especially in minor matters, cost-savingcould also be a relevant factor. A "one-man" company might be allowed to berepresented by its owner if the Judge saw fit in a particular case. But it couldnot be right, for instance, to issue some sort of tacit continuing or generallicence to an unqualified agent to appear in winding up or any other class ofproceedings.[16] In The Commissioner of Inland Revenue v Chesterfields Preschools Ltd theCourt of Appeal stated that "the current law is that the Mannix rule may be departedfrom only in exceptional circumstances".6[17] In Keemati Ltd v MR Civil Ltd Associate Judge Lester set out relevantconsiderations for the exercise of the Court's discretion to allow non-lawyers to appearon a company's behalf, including: the nature of the litigation; the complexities of thecase; the extent of the dispute; the point at which audience is sought; the importanceof an understanding of the law and a dispassionate consideration of the circumstances;that the preliminary and interlocutory stages are important to the determination oflitigation and the filing of a compliant statement of claim assists in this process; andthe need for professional objectivity, including whether the person proposed torepresent the company is closely associated with the applicant company and is also awitness.7[18] To that list I would add whether or not the application is made in an emergencysituation.85 Re G J Mannix, above n 2, at 314.6 The Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53 at [34].7 Keemati Ltd v MR Civil Ltd [2021] NZHC 538 at [6].8 Re G J Mannix, above n 2, at 314.Jayashree's/Mr Karmarkar's position[19] Mr Karmarkar says: he has personally worked on the financial accounts ofJayashree since 2008 onwards and filed returns to Inland Revenue every yearthereafter; he has substantial experience in accounting in New Zealand and overseas;he has studied cost accounting as a student from 1990 onwards; he took over theaccounts from QBSL; the proceeding strictly relates to the financial accounts ofJayashree and Mr Karmarkar is better suited to represent Jayashree than a solicitor;and he has argued many legal cases in New Zealand involving himself and hiscompany and is conversant with court procedures and ethical standards.[20] Mr Karmarkar makes further submissions under the considerations in Keematireferred to in [17] above. I will refer to those submissions (and the submissions forthe Commissioner) when I consider those criteria as relevant. I will group some ofthem together in my discussion.The starting point[21] The starting point is that generally applications to represent a company in theHigh Court by anyone who is not a properly qualified lawyer are rarely granted.Granting such an application is the exception. However, that principle must beconsidered in terms of the particular circumstances of the hearing or hearings forwhich leave is sought.9This is not an emergency situation[22] Ms Naik-Leong, counsel for the Commissioner, submits that this is not anemergency situation. Mr Karmarkar concedes that "there is no emergency to considerthis application". By that submission Mr Karmarkar appears to agree, as do I, that thisis not an emergency situation where counsel is not available.10 Additionally, there isno evidence produced by Jayashree that counsel is unavailable to represent it.9 Flow Control Ltd v Il Forno Ltd [2021] NZHC 946 at [29]–[30].10 Re G J Mannix, above n 2, at 314.Nature and complexities of the litigation and extent of dispute[23] Mr Karmarkar submits that Jayashree did not get an opportunity for a full-scalehearing in the District Court. He seeks a rehearing with all relevant documentssubmitted under standard discovery.[24] This is but one example of the submissions made by Mr Karmarkar whichindicates that he does not grasp the relevant legal issues. The appeal is against adecision on a strike-out application. By its nature, such an application is not a full-scale hearing.[25] Mr Karmarkar contended in the District Court that the advice he waspreviously given by Inland Revenue officers was erroneous. This advice was notparticularised in the Claim.11[26] Counsel for the Commissioner argued in the District Court that the Claim wasdeficient and disclosed no appropriate pleading to establish a cause of action in thetort of negligence. It was further submitted there was nothing in the Claim to indicatewhat the cause of action was, except for the cover page which stated that the Claimwas under the "GST Act, Fair Trading Act, Consumer Guarantees Act, Tort ofnegligence".[27] Mr Karmarkar submits there is "no complexity whatsoever" in the proceeding.He says the scope of the dispute is limited only to the "GST paid for rental income andexpenses, which is the result of wrong professional advice and subsequent carelessscrutiny by the IRD officers".[28] While I consider the proceeding is not overly complex, there are legaltechnicalities which Mr Karmarkar does not seem to have grasped. First, there will bedifficulties for Jayashree in advancing the appeal because of a non-compliant Claim.Jayashree's grounds of appeal include that the District Court Judge erred in: "nottaking cognizance of the civil wrong committed by IRD scrutiny officers, in habituallymisleading the appellant into erroneous way of calculating Goods and Services tax11 Karmarkar v Quality Business Solutions Ltd, above n 1, at [18].(GST) on rental income and expenses"; "not taking cognizance of the careless andnegligent working of IRD scrutiny officers and claims that they have no duty of careto perform their jobs diligently"; and "not taking cognizance of habitually negligentand careless scrutiny, made by income revenue department (IRD) officers".[29] However, as Judge Sinclair said in her decision, Mr Karmarkar had notidentified any specific common law duty of care or any particular statutory duty owedto him and/or Jayashree which is said to have been breached by the Commissioner.12The District Court could, therefore, not take "cognizance of any civil wrong ornegligence" as none had been identified by Mr Karmarkar in the District Court.[30] There are further legal issues which create difficulties for Jayashree. The Judgestated: there can be no compensation for stress by a limited liability company;13 thereis no loss pleaded by the company; and a final determination of Jayashree's GSTposition has yet to be made in the course of the disputes process which is underwayand ongoing. In other words, whether the advice alleged to have been given waserroneous, has also yet to be determined.14[31] These are all issues on which Jayashree should have legal assistance in orderto understand them and address them as necessary in the appeal.Need for dispassionate consideration of circumstances and professionalobjectivity[32] Mr Karmarkar submits that although he is not a lawyer by occupation, he hasexperience of representing himself or his organisation in various courts in India andNew Zealand. He says he has been successful in a few cases but does not identifythem. He acknowledges he is the 100 per cent owner of Jayashree and is closelyassociated.12 At [17].13 At [19].14 At [20]. The tax dispute is proceeding through the disputes procedure under Part 4A of the TaxAdministration Act 1994 (TAA). If the dispute is not resolved, the challenge procedure in Part 8Aof the TAA may be invoked. The jurisdiction to hear a tax challenge is vested in a hearing authoritywhich is either the Taxation Review Authority or the High Court. The District Court does nothave jurisdiction to determine whether Jayashree's GST assessments are correct. See at [14] and[15].[33] In Chesterfields Preschools the Court of Appeal considered that there weresound policy reasons for why a solicitor rather than a layperson, such as an officer ofa company, should act for the company in commencing and continuing litigation. TheCourt of Appeal enunciated those reasons as follows:15 A solicitor is ethically constrained to represent the company's interests,unlike an individual officer who seeks to represent it. Moreover, if a solicitoris involved, the court can generally be satisfied that careful attention has beengiven to the validity of the proceedings, and that the company's interests willbe adequately presented and protected. Similarly, solicitors recognise theduties and responsibilities that are owed to the court and to the defendant inthe conduct of litigation, and are less likely to require indulgences in the rulesof procedure or to use court processes for vexatious purposes. The court mustalso have a solicitor on the record as it cannot exercise its disciplinary powersover a company. If a director or shareholder is representing the company thereis a heightened risk that the representative will lack the objectivity that anindependent solicitor can bring to the case.[34] Mr Karmarkar claims he is " conversant with court procedures and ethicalstandards". I consider, however, Mr Karmarkar's actions in this proceeding havedemonstrated a disregard for court procedure. He did not advise the Court that he haspreviously attempted to act for Jayashree without the leave of the Court. It tookcounsel for the Commissioner to bring the relevant judgments to the Court's attention.[35] In a judicial review filed by Mr Karmarkar on behalf of Jayashree he failed tofind legal representation for the company after the proceeding was adjourned threetimes to allow him to do so.16 The High Court held it would be " contrary to goodauthority, and good reason, for Mr Karmarkar to represent the company".17 The Judgenoted that Mr Karmarkar had been given more than enough time to find legalrepresentation for the company but failed to do so over some four months.18 The Courtstruck out the proceeding.[36] Jayashree then appealed the decision of the High Court. As the Court of Appealnoted, there was an obvious difficulty with the appeal in that Jayashree was not a partyto the proceeding in the High Court.19 The Court noted that in addition, Jayashree was15 The Commissioner of Inland Revenue v Chesterfields Preschools Ltd, above n 6, at [34] (footnotesomitted).16 Karmarkar v Moore [2020] NZHC 3480 at [4].17 At [10].18 At [10].19 Jayashree Ltd v Moore [2022] NZCA 151 at [1].not represented, even though both the High Court and the Court of Appeal had madeit clear that it required representation in order to advance the appeal to a hearing.20The Court went on to note that despite being notified of that requirement many times(through Mr Karmarkar) Jayashree had not filed any document in court, or givennotice to the respondent, to indicate that it now had representation. The Court ofAppeal concluded:[17] The first three grounds relate to the lack of legal representation. There isno basis for excusing Jayashree Ltd from the usual requirement forrepresentation. To the contrary, this case is a very good example of why therule exists. Nor can there possibly be any merit in the assertion that insufficienttime has been allowed to make the necessary arrangements. It is obvious fromour review of the procedural history that Mr Karmarkar/Jayashree Ltd havebeen indulged to a considerable extent in both the High Court and this Court.To bring an appeal on the ground that insufficient opportunity was providedto comply with a fundamental obligation that was well known toMr Karmarkar/Jayashree Ltd is a waste of the Court's resources and unfair toMr Moore.[37] As Ms Naik-Leong submits, Mr Karmarkar is clearly aware of the Mannix rule.He has chosen simply to ignore the rule rather than comply with it by attempting tofile another appeal on behalf of Jayashree despite being told many times by this Courtand the Court of Appeal that a company requires legal representation before this Courtand the Court of Appeal. In this respect it is apparent that Mr Karmarkar does notrespect the rule of law.[38] Additionally, Mr Karmarkar acknowledges he is "closely associated" withJayashree. But he also goes on to submit that "there is no question of suffering ofinterest of any other person but Madhav Hari Karmarkar". It is not entirely clear whatMr Karmarkar means by that submission but it appears he is aligning his interests withJayashree's interests and does not consider Jayashree as a separate legal entity.Professional objectivity is absent in this case.[39] There is also a lack of understanding of the law on Mr Karmarkar's part whenone considers the primary relief sought in this interlocutory application: that Jayashree"should kindly be given an opportunity to present the documents of financial loss,20 At [1].which occurred in excess GST payment to IRD on account of rental income andexpenses". That relief could not be given in this application.[40] There is no argument made by Mr Karmarkar that it would be undulyburdensome to insist on counsel to represent Jayashree. The opposite is the case whenall the circumstances are considered. Further, the Court was told that Mr Karmarkarwill be out of the country from 15 October 2023 to 16 March 2024. If Jayashree wasgiven leave for Mr Karmarkar to represent it, then the appeal would languish over thatperiod. That is undesirable.Case cited by Mr Karmarkar[41] It is apparent from the above discussion that the Court is not persuaded that theapplication should be granted. However, for completeness, I mention one of the casesrelied upon by Mr Karmarkar. Mr Karmarkar submits that this Court in Flow ControlLtd v Il Forno Ltd "observed that the knowledge and understanding of the case by thedirector applying to represent the plaintiff, far outweighed the need of objectivity andprofessionalism". The Judge did not say that in his decision refusing the application,21nor in his decision refusing leave to appeal his decision on the application.22[42] Mr Karmarkar's submission that the case supports his application is anotherexample of his failure to properly assist the Court in a manner that is expected a lawyerwill do with professional objectivity.Conclusion[43] In conclusion, for all the above reasons I am satisfied that Mr Karmarkarshould not be permitted to represent Jayashree at the hearing of Jayashree's appeal.[44] Further, Mr Karmarkar is not permitted to file documents on behalf ofJayashree for the proposed appeal. Having determined that Mr Karmarkar is notallowed to represent Jayashree in connection with this proceeding, it follows that heis not one of the persons permitted to file documents on behalf of Jayashree. The21 Flow Control Ltd v Il Forno Ltd, above n 9.22 Flow Control Ltd v Il Forno Ltd [2021] NZHC 1301.appeal was accordingly not properly brought. The Notice of Appeal is non-complianthaving been filed by Mr Karmarkar. I have given thought as to whether I should allowthe appeal to remain on foot to give Jayashree the opportunity to instruct a solicitor torepresent it. On that issue I have considered the judgment of the Court of Appeal inKai Iwi Tavern Ltd v The New Zealand Guardian Trust Company Ltd.23 In that casethe Registrar of the Court of Appeal had refused to accept a notice of appeal for filingon the basis that the notice was not signed by a lawyer. The appellant filed anapplication for review of the Registrar's decision. In his judgment Stevens J said:24[9] The step that the appellant sought to take on 14 May 2013 by presentingthe notice of appeal for filing was a formal procedural step in order to initiatethe appeal. The notice was signed by a director of the company. Had he beenaware of the Mannix rule the director ought to have sought leave to sign andfile the notice of appeal for the company.[10] The Registrar relied on the rule in Mannix. However, as noted, theMannix principle is not absolute.[11] The discretion referred to at [8] above should be applied reasonablygenerously where, as in the present case, time limits are rapidly approachingand the director is only seeking leave to file the notice of appeal. It may oftenbe the case that a company appellant does not have time to arrange legalrepresentation prior to the filing of an appeal.[12] In the particular circumstances of this case, I consider that it isappropriate that Mr Oliphant be granted leave to file the notice of appeal. Inreaching this conclusion I take into account the fact that the appellant is in factrepresented by a firm of solicitors who will have responsibility for the conductof the appeal. I also take into account that Mr Oliphant is the sole director ofKai Iwi Tavern Ltd, and that the appeal is at a very early stage.[45] The circumstances surrounding the filing of this appeal are somewhat different.Here, both Mr Karmarkar and Jayashree were very well aware that leave would berequired for Mr Karmarkar to represent Jayashree.25 Nevertheless the Notice ofAppeal in this case was filed without leave being sought.[46] Further, unlike the situation in Kai Iwi there is no firm of solicitors representingJayashree waiting in the wings as there was in Kai Iwi.23 Kai Iwi Tavern Ltd v The New Zealand Guardian Trust Company Ltd [2013] NZCA 199.24 At [9]–[12].25 Refer [35] to [37] above.[47] I propose to strike out the appeal on procedural grounds. That will not preventa solicitor instructed by Jayashree applying for leave to file a fresh appeal out of time.Whether leave should be given will be considered in all the circumstances existing atthat time.Result[48] The application for leave for Mr Karmarkar to act for Jayashree Ltd at thehearing of the appeal is declined.[49] The appeal is struck out on procedural grounds.Costs[50] I did not hear from counsel for the Commissioner or Mr Karmarkar on costs.Accordingly, I reserve costs.[51] Ms Naik-Leong notes in the Commissioner's submissions that theCommissioner seeks costs on a category 2B basis. Prima facie, as the successful party,the Commissioner would be entitled to costs against Jayashree. However, given thatI did not hear submissions I give Jayashree the opportunity to respond.[52] In the first instance, if counsel and Jayashree are able to agree costs a jointmemorandum should be filed within 20 working days of the date of this judgment.[53] If costs cannot be agreed, a costs memorandum on behalf of the Commissioneris to be filed and served within five working days of the date for the jointmemorandum. Jayashree is to respond by filing and serving its memorandum ofsubmissions within five working days of the date of service of the Commissioner'smemorandum on him.[54] Costs memoranda are not to exceed three pages. The Court will consider anddetermine costs on the papers._____________________________Gordon J