CARR [2016] NZHC 1536

CARR [2016] NZHC 1536 [7 July 2016]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2015-404-2666[2016] NZHC 1536UNDER: the Companies Act 1993 (the Act)IN THE MATTER: of an appeal pursuant to section 370 of theAct against the decision of the Registrar ofCompaniesRE: JOHN MALCOLM CARRAppellantHearing: 7 June 2016Counsel: G Clarke for AppellantS McKechnie for Registrar of CompaniesJudgment: 7 July 2016JUDGMENT OF SIMON FRANCE JIntroduction[1] In 2015 the essential requirements for a company were amended to add a residence requirement, namely that the company must have:1(d) 1 or more directors, of whom at least 1 must –(i) live in New Zealand; or(ii) live in an enforcement country and be a director of a company that is registered (except as the equivalent of an overseas company) in that enforcement country.The change was one of a suite of amendments focussing on increased governance of New Zealand registered companies.1 Companies Amendment Act 2014 inserting which is now s 10(d) of the Companies Act 1993.[2] Mr Carr is the sole director of a number of such companies. The Registrar of Companies has ruled that he does not live in New Zealand, and so any companies of which he is the sole director are non-compliant. Mr Carr appeals.2The purpose of the amendment[3] Prior to the amendment there was no requirement that a director or any officer of the company live in New Zealand. The purpose behind the change is set out in the Explanatory Note to the Bill, and then the Report to the Commerce Committee which considered the Bill. As will become clear, originally the draft legislation contained an option whereby instead of a resident director, a resident agent could be appointed.[4] First, the Explanatory Note:Residents agentsThe resident agent changes seek to ensure that for each company and limited partnership, there is at least 1 person who lives in New Zealand who is legally responsible for the entity's administrative affairs. That person is nota de facto manager. However, he or she will have responsibility (along with the other relevant people) if the entity fails to comply with its reporting and record-keeping obligations.and then the Select Committee Report:The purpose of requiring a director who lives in New Zealand is to ensure that there is an identifiable individual with a substantive connection with the company who can be questioned about the activities of the company, and who can in certain circumstances be held to account. The requirement would provide a broad, practical, non-technical test for the Registrar to apply. A person would not be required to be a New Zealand citizen or to hold an appropriate visa before they could be a director who lives in New Zealand, although the person's residence status would probably be relevant to the Registrar's consideration in appropriate cases.The option of appointing an agent who lives in New Zealand was intended to provide an alternative with lower compliance costs for overseas-based New Zealand companies, but we consider that such agents would be of limited help to enforcement agencies and in many cases would not be accountable for the actions of the company. We therefore consider that the requirement for an agent living in New Zealand would provide only limited deterrence from the misuse of companies and limited partnerships.2 Pursuant to s 370 of the Companies Act 1993.We have considered the costs of this requirement and believe that most companies and limited partnerships already comply. At most we understand that 4,200 companies would need to adjust their circumstances to comply, and these companies could choose from several options to meet the requirement, including that of a director living in an enforcement country with a reciprocal arrangement for the enforcement of low-level criminal fines with New Zealand.[5] Against that background the issue arises of whether Mr Carr, who habitually spends about one-third of a year in New Zealand (and who does not come within the alternative provided by s 10(d)(ii)), can be said to be living in New Zealand for the purposes of this provision.The Registrar's approach[6] The Registrar has filed a Report pursuant to r 20.15 of the High Court Rules. By way of background the Court is advised that as at 31 January 2016 there were 569,080 companies registered in New Zealand. Obviously many have multiple directors. At the time of the amendment it was estimated there were approximately 5,800 companies that did not comply with the new requirement.[7] Drawing on the taxation legislation, the Registrar has identified a threshold of 183 days a year. If a director spends at least that amount of time in New Zealand, it will be accepted he or she is living in New Zealand for the purposes of s 10(d). Failing that, opportunity is given for a director to establish by other factors that he or she lives in New Zealand. Seemingly no guidelines are yet in place for assessing such applications (of which there are presently 10 undetermined). The Registrar cites as a possible example an occasion where the particular year is aberrant and involves greater absence than normal.Mr Carr's situation[8] Mr Carr has extensive business interests in both New Zealand and elsewhere. He provided this detail of where he has physically been in the recent years:2015 2014 2013 2012 2011 2010 2009New Zealand 69 108 136 142 126 116 118United Statesof America203 175 146 150 159 194 195Australia 42 67 37 53 44 48 22OtherCountries(including days offlying)51 15 46 21 36 7 30[9] Mr Carr is a New Zealander who owns two residences in New Zealand. His partner lives most of the year in one of them (rather than travel extensively with him). He has several New Zealand companies which employ staff and which require his supervision. He owns several parcels of land in New Zealand. He otherwise enjoys or possesses many of the trappings of a New Zealand resident – driver'slicence, firearms licence, Tax Agent status, New Zealand voter, New Zealand bank accounts and credit cards, membership of organisations, and long-term telephone numbers. His primary care physician is a New Zealand general practitioner.[10] The essential thrust of his submission is that the Registrar's focus on thenumber of days when he is physically present in New Zealand is not required by the Act, and is too narrow. When one factors in all the other matters to which I have just referred, it is apparent that he lives in New Zealand in the ordinary meaning of the word.Analysis[11] The use of "lives" in s 10 rather than the more common "resides" is not ofsignificance. The equivalent overseas statutes use the more common expression,3and it is difficult to discern any meaningful difference between the two words.3 In Australia the expression is "ordinarily resident" (s 201A of the Corporations Act 2001) and inCanada "resident Canadians" (s 105(3) of the Business Corporations Act 1985).[12] The concept of 'resides' has been defined as:4Unless, therefore, it can be shown that the statutory framework or the legal context in which the words are used requires a different meaning, Iunhesitatingly subscribe to the view that 'ordinary resident' refers to a man'sabode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life for the time being, whether of short or long duration.[13] This is plainly a useful starting point but it is equally apparent that thestatutory context will affect the Court's approach.[14] In Greenfield v Chief Executive of the Ministry of Social Development theSupreme Court considered the expression "ordinarily resident" in s 8(a) of the New Zealand Superannuation and Retirement Income Act 2001.5 The Court observed the meaning will turn on the particular statutory context within which it is used.6 There, for example, the statutory context made it plain that a person could not for the purposes of that legislation be resident in more than one country. This meant that the Mrs Greenfield's intention to return to her native New Zealand at some point to live (having been overseas for many years on missionary work) could be given less weight than it might in other contexts. Ultimately the task of the Court is to ascertain what degree of connection is intended by the use of a residence criterion in order to meet the purposes of the Act.7[15] Here, the statutory purpose can be discerned by reference to the section itself and the legislative history. Whilst physical presence in New Zealand is obviously relevant, it is plain that the capacity to enforce obligations was the paramount driver of this legislative change. For this reason I consider greater weight should be placed on the ties Mr Carr has to New Zealand and the regularity with which he spends significant periods of time here.4 Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235.5 Greenfield v Chief Executive of the Ministry of Social Development [2015] NZSC 139, [2016] 1 NZLR 261.6 At [32].7 At [32], n 35, citing the Court of Appeal in the decision appealed, Chief Executive of the Ministry of Social Development v Greenfield [2014] NZCA 611, [2015] 3 NZLR 177 at [30]. For this reason I consider it unhelpful to review authorities under the many legislative provisions that make residence either a requirement or a relevant fact. Examples include benefit legislation, income tax and accident compensation legislation, and the High Court Rules (r 5.45 security for costs).[16] In terms of the statutory purpose, it can first be noted that s 10(d)(ii) provides an alternative to a director actually living in New Zealand. A director may instead live in an enforcement country and be a director of a company registered there. Under this option there is no requirement to spend any time at all in New Zealand. In its report cited earlier the select Committee described the key feature of an enforcement country as being one with "a reciprocal arrangement for theenforcement of low-level criminal fines". Second, the reason the alternative proposal of allowing a resident agent to be appointed was abandoned was because it would not provide a satisfactory enforcement option. It can be seen from these matters that physical presence is not the key aim – it is one means to an end.[17] In his appeal Mr Carr took issue with the Registrar's adoption of 183 days asan initial threshold. However, it must be appreciated that it is only a sifting mechanism that provides a criterion through which directors can automatically meet the statutory test. It definitively includes, but does not automatically exclude. It is open to directors to meet the test by other means. Seen in this light, the threshold is unobjectionable. Indeed, given the number of directors there are in New Zealand, some definite, easy to apply criterion is to be expected. A more individualised assessment of all directors is unrealistic and unnecessary.[18] It is to be remembered, however, that the 183 days is just a figure with no intrinsic merit. Necessarily it draws an arbitrary line, a fact which can be illustrated by the director who spends exactly six months here and so fails by a day. Thatdeficit necessitates an inquiry into the director's circumstances, but it is an inquirywhich would have regard to the fact that the person is only one day short of automatic acceptance.[19] Without laying down any definitive criteria, matters that will be relevant, given the emphasis on enforcement, are the amount of time the person does spend here, their connection to New Zealand, the ties they have to New Zealand and the manner of their living when here. In my view Mr Carr presents an example of the type of arrangement that can satisfy the test without living here for 183 days. No one factor is critical or determinative but together I consider they mean Mr Carr can properly be said to live in New Zealand.[20] Objectively he spends about a third of the year here. That is a significant period. Personally he has strong ties to New Zealand – his partner resides here most of the year, he has a home here in which he lives, he is a member of various clubs and organisations and his primary physician is his New Zealand GP.[21] Professionally he also has strong ties. He has businesses here which employ a significant number of staff. At various times they require his personal oversight. He owns land here, has New Zealand bank accounts and generally presents as any New Zealand business person would.[22] Once it is recognised that physical presence is not the key requirement (as it could not be if the default period of 183 days presence is enough), then there is little difficulty in saying Mr Carr lives in New Zealand for the purposes of the statute. He may also live elsewhere, but he also continues to live in New Zealand. There is nothing about his situation that suggests it should fall outside the intended scope – he is able to be questioned about the companies and enforcement is possible.Conclusion[23] The appeal is allowed. I determine that Mr Carr has wrongly been held not to live in New Zealand for the purposes of s 10(d) of the Act. The parties agreed prior to the hearing that costs would lie where they fall.____________________________Simon France J