MAWHINNEY v THE COMMISSIONER OF INLAND REVENUE [2017] NZHC 2195

MAWHINNEY v THE COMMISSIONER OF INLAND REVENUE [2017] NZHC 2195 [8 September 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2012-404-003985[2017] NZHC 2195BETWEEN PETER WILLIAM MAWHINNEY ASTRUSTEE OF THE FOREST TRUSTPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 31 August 2017Appearances: P W Mawhinney (Self-represented Plaintiff) in PersonH C J Salisbury and C L Russell for the DefendantJudgment: 8 September 2017JUDGMENT OF EDWARDS JThis judgment was delivered by Justice Edwardson 8 September 2017 at 4.30 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors: Crown Law, WellingtonCopy To: P W Mawhinney, AucklandIntroduction[1] On 4 July 2014, Mr Mawhinney was ordered to pay security for costs in thesum of $40,000. The proceeding was stayed pending payment being received. Thatdecision was upheld on review. No payment has been received and Mr Mawhinneyhas not taken any other steps to progress the proceeding.[2] The Commissioner of Inland Revenue applies for an order that unlessMr Mawhinney pays the $40,000 within 14 days, his proceeding shall be struck out,and he must pay the Commissioner's costs of the litigation.[3] Mr Mawhinney opposes the application. He expects to receive funds in thenear future from the harvest of forestry crops, and once litigation between anothertrust, the Doug Vesey Trust, and the Commissioner is resolved.History of the proceeding[4] Mr Mawhinney's first statement of claim was filed on 12 July 2012. Hesought, as trustee of the Forest Trust, damages or compensation of over $5 millionfrom the Commissioner of Inland Revenue.[5] The claim arises out of a decision of the Commissioner to disallow a GSTrefund of approximately $67,000. Mr Mawhinney also filed an application forsummary judgment seeking approximately $600,000 for GST refunds withheld by theCommissioner.[6] In December 2013, Mr Mawhinney filed an amended statement of claim whichwas 156 pages long and included additional causes of action alleging statutoryentitlement and application for judicial review. That was further amended in February2014. The second amended statement of claim is 188 pages long and includes anothercause of action, which purports to be a challenge under Part 8A of the TaxAdministration Act 1994.[7] The Commissioner applied for security for costs of $40,000 and sought thatthe proceeding be stayed until the sum was paid or security given. The Commissioneralso sought to strike out parts of Mr Mawhinney's statement of claim.[8] By judgment dated 4 July 2014, Associate Judge Christiansen determined theCommissioner's application.1 The Associate Judge held that the Trust andMr Mawhinney were impecunious. He found that the security sought of $40,000 wasreasonable and it could not be said that it had been calculated to stop the claim frombeing pursued. In relation to the merits of the claim, the Associate Judge stated:2It is clear that a considerable factual enquiry will be required. But, it doesappear that a number of the pleaded causes of action face significant hurdles.[9] The Judge ordered security for costs in the sum of $40,000 to be paid into Courtto be held pending determination of the proceeding. The proceeding was stayed untilthat payment was made.[10] Mr Mawhinney applied to review that decision. In a judgment dated3 December 2014, Brewer J held that the Associate Judge had not made any error inthe exercise of his discretion.3 At the review hearing, Mr Mawhinney suggested thatthe security could be provided by way of a second mortgage over a property. Brewer Jnoted that he could apply to the Associate Judge to vary the order to allow that tohappen.4 This did not occur.[11] The proceeding has been stayed since the order made by the Associate Judgein 2014. The current application for an unless order was filed and served on 16 May2017.Admissibility of Mr Mawhinney's affidavits[12] The Commissioner objects to Mr Mawhinney's second to fourth affidavitsbeing read. Those affidavits were originally served as unsworn affidavits, outside theCourt ordered deadline, and shortly before the initial hearing of the application.1 Mawhinney v Commissioner of Inland Revenue [2014] NZHC 1554.2 At [67].3 Mawhinney v Commissioner of Inland Revenue [2014] NZHC 3067, (2014) 25 NZTC 21-114.4 At [36].[13] The initial hearing date was adjourned due to a power cut. The Commissionerhas had an opportunity to read and consider the affidavits which were subsequentlyserved in sworn form. There is accordingly no prejudice to the Commissioner inpermitting the affidavits to be read. Furthermore, the application is for an order which,if granted, is likely to result in the proceeding being struck out. The interests of justiceweigh in favour of receiving and reading the affidavits and I order accordingly.Relevant legal principles[14] The power to make an unless order arises under r 7.48(2) which empowers aJudge to make any number of orders so as to enforce an interlocutory order.[15] In SM v LFDB, the Court of Appeal set out the relevant principles to apply tounless orders.5(a) As an unless order is an order of last resort, it is properly made onlywhere there is a history of failure to comply with earlier orders.(b) An unless order should be clear as to its terms. That is, it shouldspecify clearly what is to be done, by when and what is the sanctionfor non-compliance. That sanction should be proportionate to thedefault.(c) The sanction will apply without further order if the party in defaultdoes not comply with the order by the time specified. However, theparty in default may seek relief by application to the Court.(d) Justice may require that the party in default be relieved of theconsequences of the unless order where the Court is satisfied thatthe breach resulted from something for which that party should notbe held responsible. The party should not assume that belatedcompliance will suffice.(e) Where the unless order has been deliberately breached – that is,flouted – it is difficult to conceive of any situation where theinterests of justice would require granting the flouter relief fromthe sanction imposed, notwithstanding belated compliance with theorder.(f) In deciding whether or not to excuse breach of an unless order thequestion for the Judge is: what does justice demand in thecircumstances of this case? Considerations in answering thatquestion include:5 SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [31].(i) The public interest in ensuring that justice is administeredwithout unnecessary delays and costs.(ii) The interests of the injured party, in particular in terms ofdelay and wasted cost.(iii) Any injustice to the defaulting party, although thatconsideration is likely to carry much less weight in thecircumstances than considerations (i) and (ii).[16] There is jurisdiction to dismiss a proceeding if a plaintiff fails to provide thesecurity ordered. However, in general, a plaintiff is given a reasonable opportunity tocomply with an order for security for costs before the proceeding is struck out.6 InParlane v Hayes, the Court of Appeal said that to compromise irretrievably a party'sright to a merits judgment for failure to meet some procedural obligation is a seriousstep that should be taken only when such is necessary to do justice to the other interestsat stake.7Should the unless order be made?[17] The failure to progress the proceeding by complying with the security for costsorder means that the proceeding has been stayed for over three years. By any measurethat is a reasonable time within which to comply with an order to provide security forcosts.[18] The delay in progressing the proceeding is prejudicing the Commissioner. Thelonger the proceeding is stayed, the more difficult it is for staff to recall key events,some of which occurred in 2009. Furthermore, whilst the proceeding remains on footthe Commissioner must ensure that there are sufficient staff members to deal with thelitigation, or employ and train additional staff should those who are currently engagedwith the proceeding move on.[19] There is a strong public interest in ensuring the expeditious resolution of legalproceedings. Litigation which lies dormant in our court system does so at a publiccost. The delays caused by Mr Mawhinney's failure to comply with the security for6 Jagwar Holdings Ltd v Fullers Corp Ltd (1991) 4 PRNZ 577 (HC); J& T Christie Ltd (in rec) vWestpac Merchant Finance Ltd HC Dunedin CP128/91, 17 April 1997.7 Parlane v Hayes [2015] NZCA 341 at [31].costs order is at odds with the clear public interest in ensuring the just, speedy andinexpensive determination of a proceeding.[20] There is little prospect of the stay being lifted and the proceeding progressingin the short term. I do not share Mr Mawhinney's optimism about a potential sourceof funds becoming available to him to meet the security for costs order, or to seek avariation of that order, in the near future.[21] Mr Mawhinney has not produced corroborating evidence to substantiate hisclaim to have access to funds from the sale of logs in April 2018. There appears to bea dispute with Auckland Council as to whether the logs may be harvested without aresource consent. That dispute is currently the subject of Environment Courtproceedings.[22] Even if Mr Mawhinney has a right to harvest three blocks, each comprisingtwo hectares, without resource consent, as he submits, he would still need otherconsents and approvals from Auckland Council before harvesting could commence.Even then, I am not persuaded that the sale of logs would reap the sum of $56,400 asMr Mawhinney submits. That sum has been derived from a per hectare figurecalculated over a 53.1 hectare block. It does not necessarily follow that the same perhectare rate will apply to a six hectare block.[23] Furthermore, I am not persuaded that any litigation between the Doug VeseyTrust and the Commissioner will result in a source of funds for Mr Mawhinney. Thereis no undertaking or other legally enforceable agreement by which the Doug VeseyTrust agrees to advance sums to Mr Mawhinney, and so no certainty at all that willoccur. Furthermore, although Mr Mawhinney advises that there is a Taxation ReviewAuthority hearing set down for December 2017, the prospect of appeals and furtherlitigation around the claim means that, even if the Doug Vesey Trust should besuccessful (which the Commissioner says is unlikely), any funds are unlikely to beavailable in the short term.[24] Mr Mawhinney does not have any other avenues by which he can access thenecessary funds. Mr Mawhinney is an undischarged bankrupt. The property whichhe suggested could be made subject to a second mortgage to secure the security forcosts before Brewer J, has subsequently been sold by way of mortgagee sale. Thatsale has been the subject of two judgments in this Court.8[25] Finally, I take into account that the merits of Mr Mawhinney's claim havealready been assessed as weak by Associate Judge Christiansen. That view was sharedby Brewer J who observed that Mr Mawhinney appeared to be motivated more bypassion than objective assessment.9[26] This case is not dissimilar to Harrison v Harrison, where an unless order wasmade requiring the plaintiff to comply with the security for costs order within 15working days or her proceeding would be struck out.10 In Harrison, the proceedingshad been stayed for a period of nearly four years, but the plaintiff had continued to putthe defendants to further expense by bringing various applications, includingapplications to rescind interlocutory orders. The Associate Judge concluded that thetime had arrived where the plaintiff had to be presented with a clear option of eithercomplying with the security for costs order or alternatively seeing her proceedingstruck out.[27] In this case, the making of the unless order is highly likely to result in theproceeding being struck out. That is a serious consequence. The making of an orderin those circumstances is not an order to be made lightly. However, the order toprovide security for costs strikes a balance between the rights of plaintiffs to bring andprogress their proceeding, and the rights of defendants to be protected fromunmeritorious claims brought by impecunious plaintiffs. There is a public interest inensuring that justice is administered without unnecessary delays and costs. Onbalance, I consider the interests of justice require Mr Mawhinney to be afforded onefinal opportunity to pay the security for costs order or have his claims struck out.[28] That leaves the question of the length of time to comply with the unless order.Mr Mawhinney submits that if an order is to be made, he should be given another year8 Nags Head Horse Hotel Ltd v Mawhinney [2017] NZHC 401, per Moore J; Mawhinney v NagsHead Horse Hotel Ltd [2017] NZHC 455, per Lang J.9 Mawhinney v Commissioner of Inland Revenue, above n 3, at [32].10 Harrison v Harrison [2017] NZHC 598.to comply. I consider a further year to be too long. However, given the seriousconsequences of non-compliance, I intend to give Mr Mawhinney 30 days from thedate of this judgment within which to comply.Result[29] The application for an unless order is granted.[30] Unless the plaintiff pays the security for costs in the sum of $40,000 into Courtwithin 30 days from the date of this judgment, the plaintiff's proceedings shall bestruck out and the plaintiff must pay the defendant's costs of the proceeding.[31] As the successful party, the Commissioner is entitled an order of costs on theapplication. I certify for one counsel only.Edwards J