CHESTERFIELDS PRESCHOOLS LIMITED AND ORS V THE COMMISSIONER OF INLAND REVENUE HC CHCH CIV 2008-409-000722

CHESTERFIELDS PRESCHOOLS LIMITED AND ORS V THE COMMISSIONER OF INLAND REVENUE HC CHCH CIV 2008-409-000722 28 August 2008IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV 2008-409-000722BETWEEN CHESTERFIELDS PRESCHOOLS LIMITED First Plaintiff AND DAVID JOHN HAMPTON Second Plaintiff AND CHESTERFIELDS PARTNERSHIP Third Plaintiff AND CHESTERFIELDS PRESCHOOLS PARTNERSHIP Fourth Plaintiff AND ANOLBE ENTERPRISES LIMITED Fifth Plaintiff AND THE COMMISSIONER OF INLAND REVENUE Defendant Hearing: 28 August 2008 Appearances: M Andrews for Plaintiffs P J Shamy for Defendant Judgment: 28 August 2008JUDGMENT OF FOGARTY J[1] I have been hearing this morning a number of interlocutory applications which briefly fall into three categories:• Applications by the Commissioner of Inland Revenue for Mareva injunction, ancillary orders and charging orders and to hold Ms Sisson in contempt of Court in breach of her undertaking.• An application to strike out parts of the statement of claim in support of the application for judicial review set down for hearing on 15 September.• An application by the plaintiffs for approval to proceed with charging one of the Augusta Street properties in respect of a loan advance of $150,000 from a finance company. [2] As to the applications for Mareva injunction, ancillary orders and charging orders and the challenge to the compliance by Ms Sisson of the Court undertaking, I agree with the Crown that the compliance with the undertaking has not met my expectations and in that regard I agree that the Chesterfields Preschools Limited's removal from the register should have been notified to the Court and that the Court should have had prior notice that the properties at Colombo Street were going to be advertised for tender and that the reporting by Ms Sisson of the difficulties in meeting mortgage payments should have been brought to the immediate attention of the Court and that there has been a lack of detail in the reporting generally under the terms of the undertakings. That may in part be due to difficulties in the relationship between Ms Sisson and her accountants, Dunns. [3] I am not, however, satisfied that there has been any deliberate breach by Ms Sisson of the undertaking. For example, there is room for a different judgment as to whether or not putting the Colombo Street properties out for tender was selling those properties. There was room for a view that only if that action produced a potential agreement for sale and purchase did the matter need to be reported to the Court and the Commissioner of Inland Revenue. However, I think in the course of this hearing it should be now clear, and Ms Sisson is in Court, that I regard the undertaking as to covering any dealings with any third parties, including advertising agents as to the prospect of properties being put up for sale, should be brought to the attention of the Court and the Commissioner of Inland Revenue. I have reached theview that I have lost a degree of confidence in the use of undertakings as a measure of control in the meantime. [4] The undertakings were put in place as a mechanism for holding the balance between preserving the property of the plaintiffs pending this litigation and, on the other hand, preserving the fruits of potential judgments for debt on the part of the Commissioner. I have been at all times concerned not to cause inappropriate reactions from financiers based on a misunderstanding of the position and that was one of the reasons why I lifted the precharging orders against the titles and the Mareva injunction. [5] At the present time I am aware that the Hampton family and Ms Sisson are not meeting the interest liabilities to the National Bank as recorded in their letter of 8 August. The present position is that my ability to judge how to hold the balance between the two parties and to what extent the properties can be enhanced in value, for example, by subdivision, is on hold pending the outcome of the hearing to take place in September, being the second judicial review. When I have heard that case and written a judgment I will then be in a position to form a better judgment as to the extent to which the Hampton family should be left free to deal with these properties and the extent to which they should be restrained from doing so in order to protect the interests of the Commissioner of Inland Revenue. [6] Because of the past history which I have briefly referred to I am of the view, firstly, that Ms Sisson's undertaking should remain in place and secondly, and additionally, that there be orders directing all the plaintiffs and Ms Sisson against any further dealing with the properties without prior notification to the Court and to the Commissioner of Inland Revenue. [7] I deliberately use the word "dealings" and I intend that word to be understood in its broadest sense. It means discussing the encumbrance or alienation of any of the properties with any third party. So, for example, if there is an approach to the National Bank for further financial accommodation, before that approach is made prior notification to the Court and Commissioner of Inland Revenue should be given. That can be done quite informally, by a simple memorandum or a short affidavit.Likewise, if the National Bank or any other financier with a charge alters their terms of financial dealing or wants to discuss alteration and approaches any of the plaintiffs and/or Ms Sisson, the fact of that approach and shift in position by the financier should be reported immediately to the Court and the Commissioner of Inland Revenue. These explanations of the term "dealing" should be regarded as additional terms of the directions and restraints being imposed on the parties but also understood to be illustrative of the term "dealings". To give another example, if there is some rates issue and any intervention by the rating authority, similarly, that would fall in my view into an area of dealing. [8] The intent of these orders is to freeze all transactions relating to these assets for an interim period of three months from today with the qualification that the terms will be reviewed, without further application, by this Court, immediately following the signing of the judgment in respect of the proceedings set down for hearing commencing 15 September. What I have in mind is that on the signing of that judgment I will, at the same time, release a minute scoping the matters for review and calling for submissions and/or a telephone conference. Thereby, this process of review is designed to be in the interests not only of the parties to these proceedings but also in the interests of the National Bank of New Zealand and any other financiers. [9] The application for the additional finance of $150,000 in respect of the Augusta Street properties is adjourned and may be brought back to the Court and considered during this period of three months, which is one of the reasons I have referred to other financiers. I have in mind that there may be a need within this three month period for further financial arrangements to be put in place either with the National Bank or with other parties. [10] Leave is reserved for any of the parties to apply to the Court for clarification, further direction or extension of these orders. These orders are made under the powers of the Court to "freeze", in modern parlance, dealings with property which is either the subject of litigation or which may be had recourse to in order to satisfy the obligations that may follow the litigation.[11] I turn then to the pleadings. Judicial review is a process whereby the Courts ensure that Government agencies act within their legal powers and act fairly. Judicial reviews are not an appeal process; nor are they a mechanism whereby the High Court asserts any power to exercise a discretion or discharge a duty which has been given by Parliament to an agent, in this case the Commissioner of Inland Revenue. It follows that judicial review hearings are essentially confined to looking for error of law or an unfair process. Error of law of course includes in the area of exercise of statutory discretion an examination of whether or not the statutory discretion has been exercised in good faith for its proper purpose producing an outcome within the purpose of Parliament, taking into account relevant factors and excluding irrelevant factors. That is not intended to be a comprehensive discussion of judicial review but the reason I have set it out is that there have been, and I am faced with, applications to strike out aspects of the pleadings on the grounds that they are non-justiceable because they fall outside the proper scope of judicial review. It is not possible for me to judge today, with sufficient confidence, the merits of the Commissioner's application to strike out aspects of the pleadings; but I have set out my understanding of the scope of judicial review so that the parties can be under no illusions as to the issues that can be argued in the next fixture. [12] I should add that the principle of res judicata also applies and that this is not the occasion to re-litigate matters that have been litigated and are the subject of a judgment to the previous judicial review. The recourse of the parties in that respect is to appeal that decision not to go back to the Court of decision, the High Court, which is functus in that regard, functus meaning having done its job. There are important policy reasons why the litigation cannot be re-opened but has to be dealt with by way of appeal and they apply here. [13] Questions of costs in today's hearing are reserved. [14] By way of immediate application of these orders I direct, firstly, that a copy of this judgment should be provided to Mr Roger Bell, the business banking manager of the National Bank who is dealing with Ms Sisson, and can be accompanied by an explanation under the letterhead of Mr Andrews' law firm as to the context and that that should be done by the end of this week and if its done, as I expect it to be done,a copy of that letter to be provided at the same time, simultaneously, to Mr Shamy's firm as solicitors for the Commissioner of Inland Revenue. I would expect in that case as there is no basis for the Commissioner to use the power in s 17 or other statutory powers to approach the National Bank directly it having been satisfied the National Bank is informed. If the Commissioner is of the view that the covering letter misleads the position or is in any way of concern, the appropriate step would be for Mr Shamy to seek an urgent hearing with me by telephone or otherwise and which would be granted whether I am in Christchurch or not. [15] Secondly, there is an application to continue negotiations with Base Corp Finance for financial assistance and that is in respect of the application which was adjourned. That consent is given. Again, I do not see the need for the Commissioner of Inland Revenue to approach that company independently. The terms of the order I have made means that any second loan offer made by that company to either the plaintiffs or Ms Sisson will need to be disclosed immediately to the Court and to the Commissioner of Inland Revenue before it can be accepted and will, in short, need to be the subject of an application to the Court for approval. All that the plaintiffs and Ms Sisson are free to do with their advisers now is to go back to that company and discuss, free of restraint, an alternative financing proposal, the ultimate merits of which, if one is offered, will be considered by this Court after hearing from the Commissioner of Inland Revenue.Solicitors: Minter Ellison Rudd Watts, Wellington, for Plaintiff Raymond Donnelly & Co, Christchurch, for Defendant