SMITH v COMMISSIONER OF INLAND REVENUE [2019] NZCA 521

SMITH v COMMISSIONER OF INLAND REVENUE [2019] NZCA 521 [29 October 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA774/2018[2019] NZCA 521BETWEEN PAUL KENNETH SMITHApplicantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 21 October 2019Court: Brown, Gilbert and Goddard JJCounsel: Applicant in personH W Ebersohn and O J G Upperton for RespondentJudgment: 29 October 2019 at 3.00 pmJUDGMENT OF THE COURTA The application for an extension of time to appeal is declined.B No order as to costs.____________________________________________________________________REASONS OF THE COURT(Given by Brown J)Introduction[1] On 1 March 2012 Associate Judge Gendall made an order adjudicatingMr Smith bankrupt.1 He wishes to appeal from that decision. However, as several1 Commissioner of Inland Revenue v Smith [2012] NZHC 756.years have passed, it is necessary for Mr Smith to make the present application for anextension of time under r 29A of the Court of Appeal (Civil) Rules 2005 to file a noticeof appeal. The Commissioner of Inland Revenue opposes the application.Relevant background[2] Mr Smith's bankruptcy has its origins in an investigation by the Commissionerinto his liabilities for income tax and goods and services tax (GST) concerning theperiod during which he operated a taxi business in Foxton. The Commissionerassessed Mr Smith to be liable for core tax, penalties and interest in the total sum of$71,145.99. Mr Smith did not bring a challenge to that assessment under the challengeprovisions in the Tax Administration Act 1994 (TAA).The District Court debt proceeding: CIV-2009-031-151[3] The Commissioner filed a statement of claim in the District Court at Levin inearly August 2009 seeking judgment for the amount of the unchallenged tax liability.Mr Smith filed a document on 3 September 2009 described as a notice of defence butwhich did not meet the requirements of a statement of defence. No filing fee was paid.The Deputy Registrar advised the applicant of the deficiencies and required him to filea statement of defence by 27 October 2009. Mr Smith failed to do so. Judgment bydefault was entered in the sum of $71,325.99 being the amount of the claim plus courtfees and costs.The District Court criminal proceeding: CRI-2009-031-1664[4] Criminal charges were also brought in connection with Mr Smith's tax affairs.Following a trial in the District Court at Palmerston North on 31 October 2011 he wasfound guilty on 17 charges of filing false GST and income tax returns.[5] However those convictions were overturned in this Court on 29 May 2013.A retrial was ordered.2 But the Crown elected not to proceed with a retrial andMr Smith was discharged on 21 August 2013.2 Smith v R [2013] NZCA 184.The High Court bankruptcy proceeding: CIV-2011-454-530[6] The Commissioner served a bankruptcy notice on Mr Smith requiring him topay $71,355.99 being the amount of the judgment plus $30 for the certificate ofjudgment. Mr Smith having failed to pay, on 17 November 2011 the Commissionerfiled an application in the High Court at Palmerston North for an order adjudicatingMr Smith bankrupt. Mr Smith did not file a statement of defence to the application.The High Court judgment[7] The proceeding was heard in the High Court on 1 March 2012. Mr Smith didnot attend. However he sent a letter to the Court containing what the Judge describedas a number of "extreme allegations" and "serious claims".3[8] The Judge was made aware of the then status of the criminal proceeding.The judgment recorded:[14] As to this, I record that Ms Carpenter appeared as counsel for thejudgment creditor before me at the hearing today. She confirmed that thejudgment debtor in earlier criminal proceedings has been convicted forknowingly filing false income tax and GST returns and was sentenced on thesematters I understand on 31 October 2011.[15] The judgment debtor in his 29 February [2012] letter to the Courtcontended that this case cannot proceed "due to it being in the Court ofAppeal".[16] As I understand the position from Ms Carpenter, the appeal before theCourt of Appeal by the judgment debtor is against his sentencing on thecriminal conviction which occurred on 31 October 2011. He has not appealednor made any application to set-aside the original judgment of the DistrictCourt against him in favour of the judgment creditor on which the presentproceeding relies.[17] As I see the position there is simply nothing before the Court by wayof a possible defence or opposition to the present application.[18] The judgment debtor has clearly committed an act of bankruptcywhich remains unremedied. An order for adjudication is appropriate here.3 Commissioner of Inland Revenue v Smith, above n 1, at [10] and [12].Mr Smith's application for an extension of time[9] Mr Smith's application for an extension of time, which annexed severaldocuments, foreshadowed three proposed grounds of appeal, namely:• the respondent's confirmation that documents filed in the High Court werefalse;• his convictions were overturned by this Court and he was discharged on allcharges;• the Official Assignee supports Mr Smith's application for an order forannulment of his bankruptcy.[10] The reasons advanced for the delay of more than six years were:• Mr Smith has had two knee replacements;• his mother passed away due to a home invasion;• receipt of a letter from the respondent responding to Mr Smith's requestfor information.[11] Mr Smith's written submissions filed in support of his application claimed thatInland Revenue had committed perjury and other criminal offences in the DistrictCourt and the High Court. It was also submitted that no evidence has been filed orsupplied to him proving he owes any money. In his remarks at the hearing he placedemphasis on the fact that his criminal convictions have been overturned.He maintained that as a consequence he could have no civil liability for unpaid incometax and GST. He sought to invoke a number of provisions in the New Zealand Bill ofRights Act 1990 in support of that contention.[12] In the course of his presentation he handed up a number of documentsincluding a notice by the Crown Solicitor dated 8 March 2010 under s 168(1) of theSummary Proceedings Act 1957 relating to the filing of a written statement. Anotherdocument to which Mr Smith referred among the several documents annexed to hisapplication was an email from the office of the Official Assignee dated 28 November2017 following Mr Smith's successful appeal against his conviction. We were invitedto infer that the Official Assignee supports Mr Smith's current application.The Commissioner's opposition[13] The Commissioner opposed the application on several grounds including:(a) The application was filed on 10 December 2018, 6 years and 8 monthsout of time. It was not served on the respondent who only received itfrom the Court of Appeal on 12 July 2019, 7 years and 3 months out oftime.(b) Mr Smith has not provided affidavit evidence substantiating the reasonsfor his delay in seeking to appeal from the judgment. The reasons givenare insufficient to explain the duration of the delay. While it appearsthat Mr Smith had knee surgery in 2012 and that his mother passedaway in mid-2017, there is no explanation as to why he did not seek toappeal the decision between 2013 and mid-2017.(c) The delay in seeking to appeal has caused prejudice to the respondenton account of staff changes since 2012 and the difficulty of obtainingrelevant documentation.(d) The merits of the prospective appeal are low.(e) The appeal raises no issues of public importance.[14] So far as the merits of the proposed appeal are concerned, Mr Upperton notedthat the Insolvency Act 2006 provides for when a bankrupt may be discharged or applyfor discharge of bankruptcy. If Mr Smith is given leave to appeal, then the respondentintends to argue that the statutory process (and not an appeal of the bankruptcydecision out of time) provides the appropriate remedy for Mr Smith.Discussion[15] It is convenient first to address the first document which Mr Smith provided tothe Court at the hearing. He can be forgiven for being confused by this document.It was erroneously prepared by the Crown Solicitor. While it is a document intendedto be filed in the criminal proceeding in accordance with s 168 of the SummaryProceedings Act, the heading of the document on the front sheet erroneously referredto the District Court debt proceeding.[16] We accept Mr Upperton's submission that the manifest error in the heading ofthe document does not provide any basis for the suggestion that there has been fraudor conspiracy on the part of the Commissioner. While the document hasunderstandably caused confusion for Mr Smith, it does not assist him in relation to thepresent application.[17] It seems clear that Mr Smith has proceeded in the erroneous belief that the factthat he was discharged on the various charges against him in the criminal proceedingin itself provides a defence to the Commissioner's claim in the District Court debtproceeding. However Mr Upperton is correct in his submission that the outcome ofthe criminal trial is irrelevant to the decision which Mr Smith now seeks to appeal,namely the decision of the High Court adjudicating him bankrupt on the basis of thejudgment entered against him in the District Court debt proceeding.[18] Mr Smith's attempt to appeal from the High Court judgment is doomed to failbecause that judgment is based on an act of bankruptcy, namely the non-compliancewith a bankruptcy notice. Putting to one side for a moment the fact that this is a taxdebt, if a debtor wishes to challenge bankruptcy proceedings it is necessary for thedebtor to apply to set aside the debt judgment on which the bankruptcy notice isfounded.[19] Mr Smith appears to understand this because he has previously attempted tofile in this Court a notice of appeal against the default judgment. The Registrar'srefusal to accept that appeal was upheld in a judgment of Williams J dated 10 July2019.4 The point was made there that the relevant appeal pathway against a defaultjudgment entered by the Deputy Registrar is to the District Court itself in the firstinstance.[20] In response to a minute of 2 August 2019 in the present matter Mr Smithindicated that he intended to pursue an application in the District Court to set aside thejudgment. However in a memorandum of 7 August 2019 Mr Upperton for theCommissioner made the point that as an undischarged bankrupt Mr Smith has nostanding to challenge the District Court judgment, the right of challenge being vestedin the Official Assignee.[21] Mr Upperton made the further point that even the Official Assignee could notsuccessfully apply to set aside the judgment debt for the reason that the debt inquestion is for tax. Under s 109 of the TAA the Commissioner's assessment is deemedto be correct unless the correct challenge procedures were followed.The Commissioner's assessment not having been challenged, it cannot be challengednow and the assessment is deemed to be correct.[22] The latter point is an insuperable obstacle for Mr Smith. Even if the OfficialAssignee was to agree to make an application in the District Court to set aside thedefault judgment (and there has been no communication of which we are awaresubsequent to the 28 November 2017 email that would indicate that is likely) the factthat the default judgment is for a tax debt which was not the subject of a challengeproceeding in the manner provided in the TAA would render the application futile.5[23] Regrettably for Mr Smith it follows that there would be no point in our grantingan extension of time for him to appeal against the High Court judgment adjudicatinghim bankrupt. The avenues open to him are those noted in the Commissioner'sopposition.64 Smith v Commissioner of Inland Revenue [2019] NZCA 301.5 Nor is there any suggestion that Mr Smith followed the objection procedures mentioned in s 109of the Tax Administration Act 1994.6 At [14] above.Result[24] The application for an extension of time to appeal is declined.[25] We understood Mr Upperton not to press the claim for costs on the application.Accordingly there is no order for costs.Solicitors:Crown Law Office, Wellington for Respondent