CHEANG v THE COMMISSIONER OF INLAND REVENUE [2014] NZHC 2418

CHEANG v THE COMMISSIONER OF INLAND REVENUE [2014] NZHC 2418 [3 October 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-001424[2014] NZHC 2418BETWEEN KIN SAN CHEANGAppellantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 10 September 2014Appearances: P S Davidson for the AppellantS J Leslie and C L Russell for the RespondentJudgment: 3 October 2014RESERVED JUDGMENT OF MOORE JThis judgment was delivered by on 3 October 2014 at 1:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/ Deputy RegistrarDate:Introduction[1] The appellant, Mr Cheang, was sued in the District Court by the Commissioner of Inland Revenue for $301,767.86. This amount arose from default assessments issued in respect of unpaid income tax for the 2004 and 2005 years.[2] The means by which the Commissioner's assessments may be challenged arelimited. They require the taxpayer to commence the dispute or challenge the processunder the Tax Administration Act 1994 ("the TAA").[3] Mr Cheang did not take any steps under the TAA and as a result none of themechanisms for challenging the Commissioner's assessments were engaged.[4] The Commissioner then commenced recovery action in the Auckland District Court seeking judgment on the debt. The process for doing so is prescribed by theDistrict Court Rules 2009 ("the Rules") which set out timetabling requirements forthe various steps. The Commissioner filed a notice of claim. Mr Cheang defended the claim and filed a Notice of Response. The parties then exchanged Information Capsules as required by the Rules.[5] Then, under the Rules the Commissioner had 90 working days to file andserve a Notice of Pursuit of Claim ("NPC"). This was triggered when Mr Cheang served his Information Capsule. The period would have expired on 30 January 2014. But, for reasons which are not entirely clear, the Commissioner did not serve Mr Cheang with a NPC. Instead, about seven weeks before the period for filing the notice expired, the Commissioner filed an application to strike out Mr Cheang's defence on the grounds that his Notice of Response to the Commissioner's claimdisclosed no reasonable cause of action because the District Court had no jurisdiction to determine the correctness of tax assessments.[6] Mr Cheang filed a notice of opposition to the strike out application.Relevantly, the principal ground of opposition relied on was that the Commissioner's failure to comply with the Rules' requirement to file an NPC within time meant thatthe proceedings were at an end and the Court had no jurisdiction to entertain theCommissioner's application.[7] The District Court heard the application. Judge Harrison determined that theCommissioner's failure was not fatal to the application; the proceedings were not atan end. As such he determined the Court had jurisdiction to deal with the application. Mr Cheang's defence was struck out.Appeal[8] Mr Cheang now appeals that decision on the following grounds:(a) The District Court had no jurisdiction to hear the application or make the orders because the Commissioner failed to file a NPC or an extension out of time to file such a notice;(b) The District Court:(i) misapplied the relevant Rules;(ii) effectively granted an extension of time after the time for filing had expired, when no proper application had been filed;(iii) there were no proper grounds on which to exercise the discretion and Mr Cheang was not heard;(iv) misconstrued and misinterpreted the defence and misapplied the law relevant to strike out applications.Appellant's submissions[9] Ms Davidson, on behalf of Mr Cheang first submits that His Honour was wrong when he determined that he had jurisdiction to hear and decide the strike out application. Ms Davidson submits that the proceeding came to an end on 30 January 2014 when the Commissioner failed to file an NPC. In support of this submission Ms Davidson relies upon r 2.17.2 which provides as follows:If a proceeding is not settled under rules 2.10 to 2.15, the plaintiff may pursue it before the court only by taking all of the following steps:(a) the plaintiff must serve on each defendant a notice of pursuit of claim in form 6 (without completing the affidavit section) and, as soon as practicable after service of each form 6, file each completed form 6; and(b) the plaintiff must, when filing under paragraph (a), also file a single copy of the following documents in the proceeding:(i) each form 3 (response by defendant) that has been served on the plaintiff; and(ii) each form 4 (plaintiff's information capsule) that has been served on each defendant; and(iii) each form 5 (defendant's information capsule) that has been served on the plaintiff.[10] More importantly, and essentially the nub of Ms Davidson's argument, isr 2.17.4 which expressly provides that the proceedings come to an end if the plaintiff does not pursue the claim under r 2.17.2 within 90 working days. Rule 2.17.4 provides as follows:The proceeding comes to an end if the plaintiff does not pursue the claim under rule 2.17.2 within 90 working days after the date on which thedefendant's information capsule is served on the plaintiff.[11] Also relevant to this discussion are the subsequent rules, r 2.17.5 and r 2.17.6 which are set out below:2.17.5 The plaintiff may start the claim again, subject to any relevant limitation period, only by starting afresh under rule 2.10.2.17.6 A proceeding that comes to an end under this rule is treated as having been discontinued by the plaintiff.[12] Ms Davidson's submission is straight forward. She argues that the wordingof r 2.17.2 is unequivocal; a plaintiff can pursue a proceeding after the exchange of information capsules only by filing an NPC within the required time. The Commissioner's failure to comply with that rule means that r 2.17.4 is engaged andthe proceedings come to an end. It follows, Ms Davidson submitted, that as a consequence there was no jurisdiction for the strike out application to be filed let alone heard and determined because the time had expired and no formal application for an extension of time was made.[13] It was common ground between the parties that r 1.18 would have permitted the Commissioner, had she wished, to apply to extend the time for filing an NPC even if the application was made after the expiration of the time. However, surprisingly and somewhat puzzling, the Commissioner apparently made no such application, even orally. Ms Davidson submitted that even had the Commissioner sought to make an oral application the proper course would have been for the Judge to adjourn the matter for the filing of evidence.Should an NPC have been filed by the Commissioner?[14] Ms Davidson's appeal centres on this requirement. Rule 2.17.2(a) requiresthe plaintiff to serve on the defendant an NPC in form 6 as soon as practicable after service if a proceeding is not settled. The rule also entitles the plaintiff to pursue the claim only by taking all of the following nominated steps, of which service of the NPC is but one.[15] Ms Leslie for the Commissioner accepts it was incumbent on the plaintiff to serve and file an NPC.Did the Commissioner's claim go out of existence when the NPC was not filed in time?[16] Ms Davidson submits that the wording of r 2.17.4 is unequivocal. She submits that under its application the proceedings came to an end when the Commissioner did not pursue the claim by filing an NPC. She accepts that in terms of r 2.17.5 the Commissioner could have recommenced the claim but would have been required to do so by starting afresh through the filing and serving of a notice of claim under r 2.10.1 She submits that in the absence of filing an NPC theCommissioner's proceeding came to an end 90 working days after the date on which Mr Cheang's information capsule was served on the plaintiff. She calculated that the90 working day period expired on 30 January 2014.1 District Court Rules 2009, r 2.10.[17] Ms Leslie however submits that the claim maintained a level of existence under r 1.8, and in any event the breach is a technical non-compliance which can be remedied under r 1.10.[18] In examining this issue it is necessary to consider the following issues:(a) What are the objects and purposes of the District Court Rules?(b) What is the affect of r 1.18.2A?(c) Was the failure to file a NPC a technical non-compliance with the rules (r 1.10)?(d) If so, should the Court exercise its discretion under r 1.10?[19] I shall deal with each of these issues in turn.What are the objects and purposes of the District Court Rules?[20] It is important to examine the principles which underpin r 2.17 and the rules generally as well as the purposive approach to the meaning of legislation mandated by s 5 of the Interpretation Act 1999.[21] Rule 2.17 is designed to enforce the speedy commencement of a claim, to ensure the plaintiff has the opportunity to examine the merits of the claim before proceeding and to put the defendant on notice if the plaintiff intends to pursue the claim.[22] This principle was described in Thiele v Gold Real Estate Group Limitedwhere Judge Neave explained it in the following terms: 2The intent of the rules are clear, namely, that proceedings should be filed in a timely fashion and not be allowed to hang over a defendant's head. Failureto take the appropriate step within the prescribed time brings the proceeding to an end treating it as if it were discontinued. The proceedings are, of2 Thiele v Gold Real Estate Group Limited, DC Christchurch, CIV-2009-009-3765, 5 December 2011 at [3].course, allowed to be brought again if it is not otherwise time or statute barred.[23] The provision that the NPC is to be served on the defendant first rather than filed suggests the primary intention of the rule is to notify the defendant the plaintiff intends to proceed. Ms Leslie's submission is that this purpose was achieved in the present case when the Commissioner filed the strike out application within the 90 working day period thus notifying Mr Cheang that the Commissioner did, in fact, intend to pursue the claim. Thus, the spirit or substance of the rules rather than their strict compliance was met. I accept that submission.[24] This approach is entirely consistent with r 1.3.1 which expressly provides:1.3.1 The objective of these rules is to secure for just, speedy and inexpensive determination of any proceeding or interlocutory application.[25] Additionally, the Courts are mandated to give effect to that objective. Rule 1.4 provides as follows:1.4 Courts to give effect to objectiveThe courts must give effect to the objective of these rules when they—(a) do any act under these rules; or(b) interpret these rules.[26] This Court has previously emphasised that a pragmatic, but principled, approach is required when considering procedural rules. Jeffries J in Schmidt v Bank of New Zealand Limited observed: 3Procedural rules are the servants of Court proceedings to achieve just, speedy and at the least cost, expedition of cases. The construction of Court rules should always be approached with care but with a readiness to apply them to meet the justice of the case which is manifest before a Court. Whenever difficulties arise on interpretation the Court should always have recourse to r 4 which states:4. Construction – these rules shall be so construed as to secure the just, speedy and inexpensive determination of any proceedings or interlocutory application.3 Schmidt v Bank of New Zealand Limited [1991] 2 NZLR 60 (HC) at 63.Procedural rules are to a very significant degree generalised in their words, for they are to cover all situations for which they are to be applied. For that reason alone such an injunction as is contained in r 4 enjoins a liberal and large construction.[27] Furthermore, the status of proceedings under r 1.7.4 must be viewed in the light of r 1.10 which deals with non-compliance. It provides that where the rules may not have been fully complied with, this does not of itself invalidate the proceeding or any step taken in the proceeding. This provision is discussed later in this judgment.What is the effect of r 1.18.2A?[28] Rule 1.18.2A provides as follows:1.18.2A To avoid doubt, a proceeding does not come to an end just because the time allowed by rule 2.10, 2.14, 2.17, 2.39A, 2.47, or 3.40 or any other rule for taking any action in that proceeding expires, if that time is later extended under rule 1.18.2.[29] This rule was inserted on 14 June 2012 by r 5 of the District Courts (General) Amendment Rules 2012, apparently to resolve conflicting District Court judgments interpreting r 2.17.4 some of which held that that rule operated to prevent proceedings from being revived.[30] However, even before the rule was amended to avoid doubt, one line of District Court authority held that the rule permitted an extension of time could be given for the late filing of an NPC.[31] In determining the Court had jurisdiction to extend time despite the proceedings coming to an end, Judge Kellar said:4 r 1.18.2 is explicit in that it enables extensions after the time limit hasexpired. Although [4 2.17.4]5 is an express rule, it does not automatically override the applicability of r 1.18.1. The two rules should be read so as to work together as held in Regal Castings Ltd v Lightbody [2008[ NZSC, [2009] 2 NZLR 433 at [145]:4 Radich v O'Neill [2012] DCR 168 at [19].5 The judgment in fact cites r 2.14.4 but this is plainly a typographical error and the reference is, in fact, to r 2.17.4.If possible, conflicting provisions should be construed so as to work harmoniously together.[32] Furthermore, I agree with Ms Leslie for the Commissioner that any doubt about the nature and status of the proceedings was cured when r 1.18 was amended in June 2012 with the insertion of r 1.18.2A.[33] Ms Davidson agrees that the concluding words of the new rule requireemphasis. She submits that the words " if that time is later extended under rule 1.18.2" must be given their ordinary meaning. She submitted that r 1.18.2 onlyoperates when time is extended under the rule but not otherwise. In other words, if time is not extended a proceeding will come to an end on the expiry of the time for taking the action as provided under the relevant rule. Thus, she submits, if the Commissioner had properly applied for an extension of time to file the NPC after the expiration of the 90 working day period the Court would have had jurisdiction to hear the application and determine it. Furthermore, had the Court allowed the Commissioner to extend the time for the filing of the NPC until, say, after the strike out application had been determined, the Court would have had jurisdiction to hear the strike out application. But, because no such application has been made, the proceedings came to an end.[34] In support of that submission Ms Davidson referred to Spicers Paper (NZ) Ltd v BPK & GA Buckley Ltd.6 In that case the plaintiff applied for an enlargement of time in order to comply with an order that certain papers be filed and served within a specified period. That condition was not complied with and the proceeding was dismissed. The plaintiff applied for an enlargement of time in order to comply. The Court, after noting that the High Court Rules provide an unfettered discretion to enlarge or abridge time in order to avoid an injustice, refused to exercise its discretion to enlarge time because there was no evidence before the Court explainingthe plaintiff's default.[35] Ms Davidson submitted that the present case is analogous; the Commissioner was required to make a proper application to extend time with supporting affidavits explaining the failure to comply and providing Mr Cheang with the opportunity to6 Spicers Paper (NZ) Ltd v BPA & GA Buckley Ltd (1993) 6 PRNZ 16 (HC).oppose. In the absence of any evidence explaining the reasons for the Commissioner's default, Ms Davidson submits the District Court could notdetermine the strike out application as if the Commissioner had, in fact, successfully applied for an extension of time.[36] The difficulty with that submission is that r 1.18.2A would be of no effect if r 2.17.4 was interpreted to mean what Ms Davidson urges; that the proceedings came to an end and could not be re-activated or revived. I accept Ms Leslie's submissionthat notwithstanding r 2.17.4 the proceedings remained before the Court and did not cease to exist. That interpretation is consistent with the wording of r 1.18.2A. Thus, although a proceeding may have ended under r 2.17.4, it maintained a level of residual existence sufficient to support an application for extension of time. In that fashion it can be retrospectively rescued despite the wording of r 2.17.4. It thus follows that although the proceedings may have come to an end they have not gone out of existence to such an extent they cannot be revived. The proceedings can retrospectively be rescued despite r 2.17.4.[37] Furthermore, I accept Ms Leslie's submission that the Judge was correct when he observed that if a proceeding truly ended following a breach of r 2.17 then any subsequent application for an extension of time under r 1.18.2 would have to be made on a without notice basis because there would be no proceeding in existence at the time of the application involving the other party. However, the rules do not appear to envisage an extension of time application being made on this basis.[38] I am satisfied that the proceedings continued to exist in a form such that they could be continued if an application to extend time for filing was granted under r 1.18. However, it does not follow that simply because the rule permits an application to extend time to be made out of time because the proceedings remain sufficiently alive to support such an application, the same level of existence permits a strike out application to be made. That is a very different proposition and one which I do not accept is available in the circumstances of this case.Was the failure to file a NPC a technical non-compliance with r 1.10?[39] However, I am satisfied the failure to file a NPC amounted to a technical non- compliance with the rules in the circumstances of this case.[40] Rule 1.10 provides:1.10.1 The fact that these rules have not been fully complied with at any stage of a proceeding does not of itself invalidate—(a) the proceeding; or(b) any step taken in the proceeding; or(c) any document, judgment, or order in the proceeding.[41] Laurenson J in Zaza v Beckett,7 when considering the meaning of the rules'predecessor,8 observed that non-compliance with the rules is to be treated as a matter of irregularity rather than nullity and the Court possesses a discretion as to how the irregularity is treated. He said that the rule was designed to avoid injustice as a result of technicalities and in most cases of non-compliance it would be possible to achieve regularity with a suitable order.9 Thus under r 1.10 a Judge has the ability to'cure' irregularities. In exercising this discretion the Court is required to look at all of the circumstances of a case.Should the Court exercise its discretion under r 1.10?[42] In Zara v Beckett, three particular matters were regarded as relevant in determining whether or not to exercise the discretion to cure an irregularity. These included:(a) By withholding relief would the applicant be prejudiced?(b) By withholding relief would a benefit be conferred on the defaulting party which he/she should not receive in a particular case?7 Zaza v Beckett (1998) 12 PRNZ 415 (HC).8 District Court Rules 1992, r 5.9 Zara v Beckett, above n 7, at 420.(c) By granting relief could this cause an injustice to the defaulting party?[43] In the present case these matters may be considered together. First, Mr Cheang would not be prejudiced. It is common ground that even if theCommissioner's failure had the effect Ms Davidson urges, the Commissioner couldstart the claim again under r 2.17.5. The Commissioner is not time barred and there is nothing to prevent the Commissioner from taking that step.[44] Secondly, the purpose of an NPC is to give the defendant notice that the plaintiff intends to continue with the proceedings notwithstanding the defendant'snotice of response. This purpose was served within the 90 working day period when the Commissioner filed the strike out application. That step would have left Mr Cheang in no doubt that the Commissioner intended to pursue the claim against him.[45] Thirdly, for the reasons previously discussed, Mr Cheang has no defence. Hecannot contest the correctness of the Commissioner's assessments in the DistrictCourt. His only option was to do so in accordance with the disputes procedure set out in parts 4A and 8A of the Tax Administration Act 1994. He did not do so. The District Court does not have jurisdiction to hear challenges to the correctness of tax assessments in any circumstances.10[46] In this context the failure to file an NPC, although required by the rules, is reduced to a mere technical non-compliance. Under r 1.10 the breach does not invalidate the proceedings and a Judge has a discretion to excuse a non-compliance.[47] However, in my view the Judge was wrong when he concluded that if the strike out application was unsuccessful the Commissioner would need to apply for an order to extend the time to file an NPC. In my opinion the strike out application served the same purpose as an NPC and to require the Commissioner to take this step in these circumstances would involve an unnecessary duplication of time, effort and10 Keighley v Commissioner of Inland Revenue (2004) 21 NZTC 18,461.expense having regard to the purpose of serving an NPC. These are the very same issues the rules are designed to avoid.11Conclusion[48] It follows that I find that Judge Harrison was correct when he determined that the proceedings had not come to an end and that he had jurisdiction to hear anddetermine the application to strike out Mr Cheang's defence and to enter judgment infavour of the Commissioner.[49] I would, however, add the following caveat. This judgment should not be read as authorising the late filing of any application where r 1.18.2A is engaged. The circumstances encountered in the present appeal which permitted such a course will be relatively rare.Result[50] The appeal is dismissed. Costs are awarded to the respondent on a 2B basis with disbursements as fixed by the Registrar.Moore JSolicitors:Yoon Lee, AucklandCrown Law Office, Wellington11 District Court Rules 2009, r 1.3.1.