MONKS V COMMISSIONER OF INLAND REVENUE HC WN CIV-2001-485-817/818

MONKS V COMMISSIONER OF INLAND REVENUE HC WN CIV-2001-485-817/818 2 June 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2001-485-817/818BETWEEN ROBERT IAN ALBERT MONKS Plaintiff AND COMMISSIONER OF INLAND REVENUE Defendant Hearing: 31 May 2006 Appearances: P S Davidson for Plaintiff S F Wellik and K McLaren for Defendant Judgment: 2 June 2006JUDGMENT OF ASSOCIATE JUDGE GENDALL Introduction[1] The defendant applies for an order striking out the plaintiff's statement of claim in reliance on Rule 186 High Court Rules and the court's inherent jurisdiction. The plaintiff opposes the application.Background facts[2] This claim arises out of strongly held grievances the plaintiff has with respect to his adjudication in bankruptcy on 19 December 1996 upon the petition of the defendant. [3] Some background to all the events in question is important.[4] On 22 February 1993 the plaintiff was successfully prosecuted and fined for failure to file multiple income tax and GST returns. [5] Given that the plaintiff had not filed tax returns the defendant then issued "default assessments" against the plaintiff with respect to the periods for which the plaintiff had failed to file returns. [6] For some time, the plaintiff failed to pay the amounts owing under each default assessment. [7] Subsequently, as a result of the plaintiff's failure to pay first the default assessment amounts and secondly other tax assessment based on returns filed by the plaintiff himself, the defendant sought judgment against the plaintiff in the District Court. [8] On 15 April 1996 the defendant obtained judgment in the District Court at Wellington against the plaintiff for the sum of $34,453.83. This represented the original amount of the claim (less $500 since paid by the plaintiff) and court costs. [9] The plaintiff failed to make payment of this judgment debt to the defendant. Some six months later, on 11 October 1996 the defendant filed in this Court a petition to have the plaintiff adjudicated bankrupt. [10] The debt sought in the defendant's petition totalled $81,355.65 and was described as being:(a) Goods and Services Tax and penalties thereon in respect of the period June 1991 to December 1994 of $6,923.09; (b) Income Tax and penalties thereon in respect of the 1986, 1987, 1988, 1989, 1991, 1992, 1994 and 1995 tax years of $66,326.00; (c) Employer Premiums and penalties thereon in respect of the 1986, 1987, 1988, 1989, 1990 and 1991 tax years of $8,036.56; (d) Court costs of $70.00.[11] The plaintiff was represented at the hearing of that petition on 19 December 1996 by counsel, a Mr Laws. But, as the plaintiff had still not settled the defendant'sdebt, Master Thomson in this Court on 19 December 1996 no doubt found that he had committed an act of bankruptcy in terms of s 19 Insolvency Act 1967 and adjudicated the plaintiff bankrupt. [12] Then on 26 February 1997 the defendant filed a proof of debt for $80,249.65 being the amount which the defendant claimed as debt due from the plaintiff. [13] The Official Assignee in undertaking the bankruptcy process realised certain of the plaintiff's assets and the defendant was subsequently paid out of the proceeds. [14] Nearly 14 months after his adjudication, on 2 February 1998 the plaintiff filed an application for an order annulling the adjudication. The application stipulated that it was made "pursuant to s 119(a) and (b) of the Insolvency Act 1967". [15] The defendant at that time had been paid the amount due to him in the plaintiff's bankruptcy and therefore he did not oppose the annulment application. Indeed on 12 February 1998 the defendant gave instructions to his solicitors to represent the Department on the plaintiff's annulment application. Specifically, these stated that as payment had been received, " we do not wish to oppose the application". [16] It was on this basis that, on 23 February 1998, this Court granted an annulment of the plaintiff's adjudication in bankruptcy. The order made was sealed on 24 February 1998 and stated that the adjudication was: hereby annulled under s 119(1)(a) of the Insolvency Act 1967.[17] Some three and a half years later, on 17 August 2001, the plaintiff as a self- represented litigant at the time filed his present statement of claim in this proceeding. [18] Although the basis of the plaintiff's claim is difficult to discern from the statement of claim, it seems that his essential complaint is that the defendant "arrogantly" used his powers to obtain a bankruptcy judgment against the plaintiff in circumstances where the defendant knew the plaintiff was solvent and that thedefendant failed to supply an adequate explanation to the Court as to why an order for adjudication should be made. It is difficult to isolate a precise cause of action pleaded by the plaintiff in this statement of claim, but it appears that a claim loosely based in misfeasance in public office is probably intended. [19] The remedy sought by the plaintiff comprises a claim for damages of $4.5m.Counsel's arguments and my decision[20] The principles of law governing applications to strike out pleadings are well settled. Rule 186 of the High Court Rules provides:186. Striking out pleadingWithout prejudice to the inherent jurisdiction of the Court in that regard, where a pleading— (a) Discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or (b) Is likely to cause prejudice, embarrassment, or delay in the proceeding; or (c) Is otherwise an abuse of the process of the Court,— the Court may at any stage of the proceeding, on such terms as it thinks fit, order that the whole or any part of the pleading be struck out.[21] A strike out application is to be heard on the basis that the facts alleged in the statement of claim are true. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they could not possibly succeed - Attorney-General v Prince and Gardner [1998] 1 NZLR 262 at 267. The strike out jurisdiction is one to be used sparingly, Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641, but will not be precluded by the application raising difficult questions of law requiring extensive argument - Gartside v Sheffield, Young & Ellis [1983] NZLR 37 (CA). [22] There is no need for the defendant here to rely on the Court's inherent jurisdiction to grant strike out applications – CED Distributors (1988) Ltd v Computer Logic Ltd (in rec) (1991) 4 PRNZ 35 (CA).[23] Here, the basis of the defendant's strike out application is that the plaintiff's statement of claim: a) Discloses no reasonable cause of action; b) Is likely to cause prejudice, embarrassment or delay in the proceeding in that both: i) the claim is unintelligible; and ii) there has been an inordinate and inexcusable delay by the plaintiff; and c) Is otherwise an abuse of process in that the plaintiff has shown a complete disregard for orders of this Court, which has resulted in an inexcusable delay. [24] The defendant in submissions before me also contended that to the extent that the plaintiff's claim could be amended to disclose a more discernible cause of action, any new cause of action would appear to be based on the plaintiff's bankruptcy as otherwise the plaintiff would be putting an entirely new claim to the defendant. In this regard such an amended claim would either: a) Raise matters that have already been decided by this Court as a court of competent jurisdiction; and/or b) Be based on a claim in tort which could not possibly succeed. It follows therefore that any such amended claim according to the defendant will also be an abuse of process. [25] I turn now to consider these matters.Rule 186(a) – no reasonable cause of action[26] As I have noted, in his statement of claim the plaintiff avers that the defendant "arrogantly" used his powers to obtain a bankruptcy judgment against the plaintiff in a situation where the defendant knew the plaintiff was solvent. The plaintiff also appears to complain that the defendant failed to supply an adequate explanation to the Court as to why the bankruptcy should have been granted. There is no particularised pleading as to this aspect however. [27] There is little doubt that there can be no basis in tort or otherwise for a claim which is based solely on a public officer's "arrogance" in his/her use of powers. [28] At best the plaintiff's claim here might be considered to be one based in misfeasance in public office but this is not pleaded. [29] So far as these matters are concerned, before me counsel for the plaintiff acknowledged that she was quite unable to defend the plaintiff's statement of claim as presently drafted. She submitted however that the plaintiff should be given a final chance to file an amended statement of claim. She said this amended statement of claim would specifically plead a claim of misfeasance in public office. Her contention was that the plaintiff should not be penalised and denied the opportunity to bring before the Court his strongly held and sincere grievances against the defendant simply because as a lay person he had been unable to articulate those grievances in a manner and framework properly recognised by the law [30] But, as the Court of Appeal makes clear in CED Distributors (1988) Ltd v Computer Logic Ltd (in rec) at p 46:As a matter of practice counsel seeking to resist an application to strike out a pleading on the ground that it can be amended to overcome the objection should attempt to formulate their proposed amendment for consideration in the course of argument. [emphasis added]Unfortunately, that has not happened to any significant extent here.[31] Nevertheless, counsel for the defendant did respond here to what counsel maintains is the plaintiff's broad tortious claim of misfeasance in public office. [32] This claim although absent from the present statement of claim was referred to in the plaintiff's notice of opposition to the present strike out application. There, counsel suggested: a) Such misfeasance amounts to the "wilful and deliberate misuse by the defendant's officers of the provisions of the Insolvency Act 1967"; and that b) This caused the plaintiff harm and losses; and that c) This misfeasance is prima facie evidenced by both: i) The actions of the defendant's officers during the bankruptcy; and ii) The annulment of the plaintiff's bankruptcy. [33] In considering the tort of misfeasance in public office, it needs to be noted that it has as its base a conscious disregard for the interests of those who will be affected by official decision-making – Garret v Attorney-General [1997] 2 NZLR 332 (CA). The purpose behind the imposition of this form of tortious liability is to prevent the deliberate injuring of members of the public by deliberate disregard of official duty – Garret v Attorney-General. [34] In order to substantiate a claim of misfeasance in public office, Garrett v Attorney-General at p249 makes clear that a plaintiff would need to prove that: a) The official in question had an actual appreciation of the consequences for the plaintiff (or people in the general position of the plaintiff), and an actual appreciation of the disregard for the duty; orb) The official was recklessly indifferent to the consequences, and thus can be taken to have been content for matters to happen as they would; and c) There was an actual (or, in the case of recklessness, presumed) intent to transgress the limits of power, even though it follows that a person will be likely to be harmed. [35] In responding to these suggestions that the plaintiff's claim could be amended to a pleading of misfeasance in public office, counsel for the defendant submitted that officers of the defendant, in issuing and pursing the tax assessments and collection of the tax debt from the plaintiff, far from acting in breach of their statutory duties, were actually complying in all respects with their statutory obligations under ss 6, 6A and 156 of the Tax Administration Act 1994. [36] As to these obligations, s 6(2)(d) Tax Administration Act 1994 provides that every officer of the Inland Revenue Department had a duty to protect "the integrity of the tax system" which included the responsibilities of taxpayers to comply with the law. Section 6A(3) provides that the Department has a duty (subject to certain conditions) to collect the highest net revenue that is practicable within the law, having regard to the importance of promoting compliance especially voluntary compliance, by all taxpayers with the Inland Revenue Acts. [37] As there was clearly an undisputed debt here (the plaintiff having neither disputed the correctness of the tax assessments by objection under Part III Income Tax Act 1976 nor taken any steps to appeal or set aside the District Court judgment upon which the petition was based) and as the plaintiff repeatedly failed to pay the amount due, it seems to me axiomatic that the defendant acted properly in pursuing payment of the debt and doing so through the bankruptcy proceedings. And I find that there is nothing before the Court to suggest that either actions of the defendant's officers during the bankruptcy on the one hand or the circumstances of the annulment on the other, particularly given that the Official Assignee during the period of adjudication actually cleared the uncontested tax debt of the plaintiff of over $55,000.00, would assist the plaintiff here.[38] To suggest, as counsel for the plaintiff before me seemed to do, that the defendant should have used other ways of enforcing its judgment against the plaintiff, such as by seeking from the courts charging and sale orders, is wrong and beside the point. As I see it, the defendant in complying with its statutory obligations under the Tax Administration Act 1994 and otherwise must be free to take proper commercial decisions on how it is to enforce recovery of outstanding tax debts. Questions of timing and delay and the need on occasions for investigation by a public official such as the Official Assignee into an individual's financial affairs are often important issues when the defendant is performing its statutory obligation to maximise recovery from recalcitrant debtors of "the highest net revenue that is practicable within the law" – s 6A(3). [39] Turning to the bankruptcy hearing itself, as I have noted above, the plaintiff was represented there by counsel. Clearly the onus was on the plaintiff as debtor to show why an order for bankruptcy should not have been made against him –McHardy v Wilkins & Davies Marinas Ltd (in rec) unreported CA54/93 7 April 1993. The plaintiff had an opportunity through his counsel at the time to bring any matters such as his solvency to the attention of the Court. There was no duty on the defendant in these bankruptcy proceedings to investigate the solvency or otherwise of the plaintiff. [40] And in any event, it is clear also that in exercising its discretion to make an order of adjudication the Court may decide to do so even where a debtor is able to pay a debt but chooses not to do so. [41] As to the quantum claimed in his statement of claim being $4.5m the plaintiff has provided no verification or explanation of this. It may be that this is a claim for general damages, or perhaps exemplary damages, but as I see it the claim is extraordinary and on the basis of the material before the Court it is quite untenable. [42] On its face therefore I conclude that the claim made by the plaintiff in his current statement of claim discloses no reasonable cause of action and is quite untenable. And even if the plaintiff could amend his claim on the basis put forward by his present counsel, the new claim would be based on the bankruptcy proceedingand I am satisfied that either the plaintiff would be attempting at least in part to relitigate a proceeding over eight years after it was disposed of by this Court, or the plaintiff would be making a claim in tort which could not possibly succeed. [43] On these grounds alone I am satisfied that the plaintiff's claim should be struck out. An order to this effect will follows. [44] That effectively disposes of the application before me. For the sake of completeness, however, I will deal briefly with the other grounds put forward in the defendant's application noted at [23] above.Claim is likely to cause prejudice, embarrassment or delay – Rule 186(b)[45] As to this, counsel for the defendant contends that the plaintiff's statement of claim not only fails to disclose a reasonable cause of action but is unintelligible. He notes that there is authority for the principle that an unintelligible pleading may be struck out – Philips v Philips (1878) 4 QB D 127 at 132 and 136. [46] I agree. There can be little doubt in my view that the plaintiff's present statement of claim is unintelligible for the reasons I have outlined above. On this ground the statement of claim should be struck out as well. [47] Further, counsel for the defendant goes on to argue in terms of Rule 186(b) that there has been inexcusable and inordinate delay on the part of the plaintiff here, which also is likely to cause prejudice, embarrassment or delay to the defendant and on this basis too the statement of claim should be struck out. [48] In her submissions before me, counsel for the plaintiff specifically accepted that given this matter has remained unresolved for close to five years, the defendant's continuing frustrations were fully understandable. She acknowledged too that the courts have struck out proceedings on the grounds of inordinate and/or inexcusable delay or flagrant and repeated disregard of timetable orders – Grovit v Doctor [1997] 2 All ER 417 and Arbuthnot Latham Bank v Trafalgar Holdings Ltd[1998] 2 All ER 181.[49] Counsel however endeavoured to explain both the repeated delays and the failure to comply with court processes on the part of the plaintiff here and suggested that "unless orders" could be made to prevent a repeat of this situation in the future if the plaintiff is allowed to continue with his proceeding. [50] This situation is hardly satisfactory. Although I do not need to decide this matter definitively, under the present circumstances I would tend to the view that the magnitude and circumstances of the plaintiff's delays here and his repeated failures to comply with court imposed timetable orders are such as to justify the plaintiff's claim also being struck out, in terms of Rule 186(b).Claim is otherwise an abuse of the process – Rule 186(c)[51] Principally the defendant's submissions with respect to this ground are in similar terms to those noted at [47] above. [52] That said, if required to decide this question I would also tend to the view here that the plaintiff's claim is otherwise an abuse of process for reasons of delay and what I see as intentional flouting of court timetable orders in the past..Conclusion[53] It will be apparent from my findings above and particularly at [42] and [43] that the defendant's application to strike out the plaintiff's statement of claim has succeeded. [54] An order is now made that the plaintiff's statement of claim is struck out.Costs[55] As to costs, before me neither counsel made any significant submissions on the question of costs.[56] If costs are in issue between the parties then counsel for the defendant is to file a memorandum as to costs within 20 working days of the date of this judgment. Counsel for the plaintiff is then to file any memorandum in response as to costs within 30 days of the date of this judgment. [57] I will then decide the issue of costs upon the basis of the material filed, unless either party gives notice it wishes to be heard on the issue. __________________________Associate Judge D.I. GendallSolicitors:Tripe Matthews & Feist, Wellington, for Plaintiff Crown Law Office, Wellington, for Defendant Judgment delivered at 10.00m on Thursday 2 June 2006.