THE COMMISSIONER OF INLAND REVENUE V PROPERTY VENTURES LIMITED (IN RECEIVERSHIP) HC CHCH CIV-2010-409-000123

THE COMMISSIONER OF INLAND REVENUE V PROPERTY VENTURES LIMITED (IN RECEIVERSHIP) HC CHCH CIV-2010-409-000123 16 April 2010IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV-2010-409-000123IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND PROPERTY VENTURES LIMITED (IN RECEIVERSHIP) Defendant Hearing: 16 April 2010 Counsel: P Courtney for Plaintiff K W Clay for Defendant M J Singleton for the Receivers of Property Ventures Limited Judgment: 16 April 2010ORAL JUDGMENT OF PANCKHURST JIntroduction[1] There are two applications before the court being one on behalf of Property Ventures seeking a stay of this liquidation proceeding and, in consequence, an order restraining advertising of the proceeding. The second application is one on behalf of the Commissioner seeking leave to file an amended statement of claim should it be found necessary for leave to be given [2] I note that the receivers of Property Ventures have been represented today by Mr Singleton. A notice of appearance was filed by the receivers who have also given notice of a claim by Allied Farmers Investments Limited in the sum of about $40m against Property Ventures (the company). [3] The background is that on 20 January 2010 the Commissioner issued liquidation proceedings against the company and a further 11 associated companies. The companies had not filed returns despite the issue of statutory notices requiring that they do so and the making of orders in the District Court to similar effect. Theproceedings were founded on the just and equitable jurisdiction to wind up companies, in this instance essentially on the basis that their conduct in relation to tax responsibilities had been delinquent over a significant period. [4] In the event the outstanding returns were filed by the various companies in late February. The Commissioner withdrew proceedings against the other companies save for Property Ventures. In relation to it an amended statement of claim was filed asserting alternative grounds for a liquidation order, namely that the company was unable to pay its debts and, in the alternative, that it remained just and equitable for it to be wound up. [5] This action of singling Property Ventures out and filing an amended claim against it prompted complaints on behalf of the company; that there was a binding arrangement to the effect that if the outstanding returns were filed the liquidation proceeding would be discontinued; that the Commissioner's failure to do so was abusive and, hence, that a restraint upon advertising and a stay of the proceeding was appropriate. Lastly Property Ventures contended that in any event leave was required in order to file the amended statement of claim and such have not been sought by the Commissioner.The issues[6] To my mind there are three essential issues which require determination. They are: (a) Is there a basis to stay the proceeding? (b) If not, was leave required to file the amended statement of claim, and (c) if leave was required, should it be granted in the circumstances of this case?Ought the proceeding be stayed?[7] Jurisdiction to stay a liquidation proceeding is given by r31.11 which relevantly provides:Power to stay liquidation proceedings(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court – (a) for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and (b) for an order staying any further proceedings in relation to the liquidation. (2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just. (3) The inherent jurisdiction of the court is not limited by this rule.[8] The test to be applied has been explained in a number of authoritative decisions including Anglian Sales Ltd v South Pacific Manufacturing Co Ltd 1 as follows:But the right to have a winding-up petition determined, being a right conferred by statute, ought not be taken away except where the existence of that very statutory right itself is seriously challenged; that is, where the challenge can on appropriate grounds be made to the petitioning creditor's status as such. If a challenge were allowed in circumstances short of this, the Court would in effect be refusing to give effect to the very right which the statute has conferred upon a creditor to have the petition itself considered. In bringing his petition the creditor is doing no more than asserting the right which the statute entitles him to do. In our opinion a creditor's right in this respect ought not to rest simply on the balance of convenience considerations which may be relevant to an application for an interim injunction. Something more than that is required.In a separate judgment Greig J stated at p 254:There is a clear distinction between the exercise of the discretion on hearing the petition and the exercise of the inherent discretion to restrain or stay the presentation of or further proceedings on a petition. What the appellant invokes in this case is the latter; to stay proceedings as vexatious or an abuse of the Court's process. That is a general inherent jurisdiction which is exercisable in appropriate cases in any proceedings, including a petition for winding up brought under the Companies Act. It is a jurisdiction which is to be exercised with great circumspection. The test is whether it is impossible for the party concerned, in this case the petitioner, to succeed in its claim ...1 Anglian Sales Ltd v South Pacific Manufacturing Co Ltd [1984] 2 NZLR 249 (CA).In Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd 2 Wallace J provided a summary of the principles; including this:(d) It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate "something more" than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and persuasive grounds for a stay.The facts in more detail[9] The relevant chronology is as follows: 20 January 2010 - the Commissioner filed proceedings against Property Ventures and 11 other associated companies (all of which are associated with Mr David Henderson). 28 January 2010 - solicitors acting for the companies wrote to the Commissioner's advisors indicating that the outstanding returns would be filed and requesting that the Commissioner refrain from advertising until the first call of the proceedings in mid- February. 28 January 2010 - the Commissioner, through counsel, confirmed that advertising would be deferred until 25 February 2010 to allow the outstanding returns to be filed. 10 February 2010 - the companies agreed to file the returns within this timeframe and requested the Commissioner to further agree to extend time for the filing of statements of defence until 25 February. 10 February 2010 - the Commissioner granted the extension of time to file defences on condition that the companies agreed to pay the costs awarded when orders were made in the District Court requiring the companies to file outstanding returns. Solicitors acting for the various Henderson companies agreed to the costs condition.2 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379, at 385.24 February 2010 - as required, the returns were filed under cover of correspondence which indicated that the companies did not accept liability to meet costs in relation to the liquidation proceedings should the Commissioner seek costs of that kind. Costs as required in terms of the District Court orders were paid a short time later. 3 March 2010 - the Commissioner advised that because the returns were still to be processed and reviewed, the liquidation proceedings would be enlarged from 15 March to the next such date of 29 March. In the same letter the Commissioner reserved his right to apply for costs against the various companies in relation to the liquidation proceedings. 5 March 2010 - Allied Farmers Investments Limited appointed receivers of all of the personal property of Property Ventures. 20 March 2010 - the Commissioner filed the amended statement of claim with which I am concerned today. 23 March 2010 - the Commissioner advised the solicitors for the companies that the liquidation proceedings would be discontinued against all companies, other than Property Ventures, subject to the costs issue being reserved. 25 March 2010 - Allied Farmers filed an appearance in support of the liquidation proceeding including notice that it was a creditor of Property Ventures in the sum of almost $40m. 25 March 2010 - the Commissioner advised Property Ventures' solicitors that the liquidation costs in relation to the proceeding pertaining to it were not payable at this point because that proceeding was not to be discontinued, rather further pursued. 29 March 2010 - as earlier foreshadowed, leave was obtained to discontinue the proceedings against each of the other companies save for Property Ventures. 30 March 2010 - Property Ventures, as required in terms of directions made by the Associate Judge, filed the application seeking a stay of the proceeding and restraint upon advertising.30 March 2010 - the Commissioner agreed not to advertise the liquidation proceedings before the hearing of such application which had a hearing date for today (16 April). 30 March 2010 - despite the pendency of the application to restrain advertising and the directions made to that effect before the Associate Judge, a newspaper report was published in Christchurch referring to the initiative by Property Ventures to prevent advertising. 12 April 2010 - the Commissioner filed the leave application in relation to the amended statement of claim filed (without leave) the previous month. [10] I note in relation to the different statements of claim their different contents. The January claim pleaded three main matters as justification for the liquidation of the company on just and equitable grounds. These were non-compliance with the statutory obligation to provide returns (dating back to March 2006); non-compliance with a statutory notice issued by the Commissioner in April 2009 and default in relation to compliance with a District Court order made in September 2009. The statement of claim also referred to the Commissioner being a creditor of Property Ventures in the sum of approximately $94,000. [11] The amended statement of claim dated 20 March contained rather different allegations. It referred to a general security agreement originally granted by Property Ventures to Hanover Finance Limited, to the guarantee by it of a similar agreement between Hanover and an associated company in the Henderson group and there was a further allegation concerning the assignment of the general security agreement to Allied Farmers Investments Limited and the appointment by that entity of receivers on 5 March. The claim then referred to Allied being a creditor of Property Ventures for at least $38.7m and to the Commissioner likewise being a creditor owed, by then, about $102,000. Liquidation of the company was sought on the basis that in terms of s241(4)(a) of the Companies Act, Property Ventures was unable to pay its debts and, in the alternative, that it was just and equitable that that company be wound up: s241(4)(d).The argument for Property Ventures[12] Mr Clay, by reference to items of correspondence between solicitors acting for the company and the Commissioner, argued that "terms of settlement" were reached, namely that if returns were filed by the agreed date and were not defective in form or content, the liquidation proceedings would be discontinued. This, counsel acknowledged, was implicit upon reading of the correspondence rather than express. [13] In support of the argument Mr Clay stressed a number of matters. He noted that the Commissioner had agreed to an extension of time for statements of defence to be filed pending the filing of the outstanding returns. The only condition imposed by the Commissioner was that the respective companies meet the costs orders made against them in the District Court. The Commissioner further agreed not to advertise the liquidation proceedings and also agreed to enlarge the first call date (from 15 March to 29 March). In the event the parties agreed to differ in relation to the costs of the liquidation proceedings, and this aspect was reserved upon the discontinuance of the proceedings. [14] Consistent with the construction for which he contended Mr Clay pointed out that the Commissioner had discontinued the proceedings as they related to the 11 other companies when matters were called before the Associate Judge on 29 March. Hence, the argument continued, the failure to discontinue against Property Ventures and, moreover, the filing of the amended statement of claim of 20 March, was contrary to the terms of settlement and represented bad faith on the Commissioner's part (my words rather than counsel's). In short, Mr Clay contended that there was a binding settlement and, for that reason, it was also inappropriate to grant leave in relation to the amended proceeding.Evaluation[15] For a number of reasons I do not accept this analysis. In my view the essence of the arrangement, such as was spelt out in the correspondence, was that the liquidation proceedings would not be advanced in the meantime to enable returns to be filed by the companies and evaluated by the Commissioner. At most a possibleimplication of the arrangement was that the filing of the returns may lead to a discontinuance, but there was no assurance of this, much less a commitment on the Commissioner's part to that course of action. [16] In filing the returns by the due date the companies did no more than comply with a long overdue statutory obligation, and, a District Court order. They also paid costs in terms of the District Court order. But these actions hardly comprised a substantial basis for a binding settlement of the kind alleged between the tax payers and the Commissioner. [17] Property Ventures, it seems to me, was in a different position to the other companies, in that it owed an amount then in excess of $90,000 and which was essentially self-assessed. By contrast the other companies (with one exception) apparently owed minor amounts of less than $100. [18] Also, the contention of a binding settlement is, I think, to be evaluated against the procedural background provided by Part 31 of the rules. In particular, r31.26 provides that liquidation proceedings may only be discontinued with leave of the Court, while r31.24 provides that plaintiffs may be added or substituted by direction of the Court. These provisions, I think, tell against the notion of a binding arrangement of the kind for which counsel contended, the more so one arrived at by implication as opposed to in express terms. [19] For these reasons it is my conclusion that there was no binding arrangement or settlement in the nature of that for which Mr Clay argued. It follows I do not accept that the Commissioner acted in bad faith in filing the amended statement of claim. Rather, he responded to changed circumstances. While the return filed by Property Ventures remedied a longstanding default, otherwise it did not change matters. But, the fact of the receivership was a significant change in relation to the situation of the company. In that changed situation I consider it was entirely open to the Commissioner to respond in the manner he did by filing the amended statement of claim. Indeed I am far from satisfied that there are clear and persuasive grounds for a stay in the circumstances of this case.[20] Ms Courtney also advanced a submission to the effect that a restraint upon advertising would no longer be of "meaningful" effect in this instance, given the newspaper article which was published on 30 March. That article had the headline "Developer seeks to block adverts". It was written in the aftermath of the hearing the previous day at which the Commissioner had discontinued against the other companies but identified his intention to continue against Property Ventures. [21] I do not find it necessary to consider this additional argument. My conclusion that there is no basis for a stay (or a restraint upon advertising) has been arrived at as a matter of principle. The further argument, it seems to me, is one based upon practical considerations and given my conclusion based on the substance of the matter I need not dwell further on this aspect.Was leave required to file an amended statement of claim?[22] There were two aspects of the arguments advanced in relation to this question. The first was whether the amended statement of claim included a fresh cause of action. The second was whether, in terms of the rules, leave was in any event necessary before the amended claim could be filed. [23] I heard extensive submissions directed to the first point - whether the amendment contains a fresh cause of action. I am inclined to the view that the revised claim does contain a fresh cause of action. However, I do not propose to consider the matter in any detail but rather assume, without finally deciding the point, that such is the case. [24] The second aspect concerns two general rules and whether they are relevant in relation to the Commissioner's amended statement of claim. Rule 7.18(2) provides the general rule that after setting down an amended claim may only be filed with leave of the Court. However, r31.7 in relation to liquidations excludes a number of the general rules including the setting down requirements – no doubt because liquidation proceedings are, in their nature, accorded urgency and set down by the grant of a first call date at the time they are filed. Despite the exclusion of the setting down rules by r31.7, r17.18 is not included in the exclusion. This opened thedoor for an argument that the present amended claim was filed post setting down when leave was required, but Mr Clay elected not to advance his argument upon this basis. Instead he relied upon another general rule, 7.77(4), which relevantly provides that "where a cause of action has arisen since the filing of a statement of claim it may be added only with leave of the Court". [25] Reverting to Part 31 (the liquidation rules), r31.1(3) provides that the High Court rules generally, and the general practice of the High Court, shall apply in liquidation proceedings unless such rules are inconsistent with Part 31 or inconsistent with the Companies Act 1993. [26] Again I heard intricate submissions from counsel directed to whether this was not only a fresh cause of action but whether therefore leave to file the amended claim was required. Again I am inclined to the view that leave may well have been required in terms of r7.77(4). But, again, I do not think it is necessary for me to reach a final view about the matter. I assume that leave was required, but do not finally decide this issue. Instead I turn to the next major question.Should leave be granted to file the amended statement of claim?[27] Mr Clay's argument was made on the basis that the present liquidation proceeding is spent. The implicit settlement arising from the terms of correspondence between solicitors, and the performance of those terms by Property Ventures (in filing the outstanding return and paying the District Court costs), rendered it inappropriate to countenance an amendment of the proceeding. Likewise the filing of a statement of claim without leave, and the Commissioner's decision to press on with the proceeding against Property Ventures, gave rise to the exchanges which occurred in open court on 29 March concerning, amongst other matters, restraint of advertising. The end consequence of this, Mr Clay submitted, was the newspaper article which appeared the following day. This article, he said, was arguably in breach of r31.10 which provides five working days from service of a liquidation proceeding during which there could be no advertising of that proceeding.[28] Counsel submitted that had the Commissioner sought leave in the first place it was unlikely that the complications which attended the hearing on 29 March would have existed and that the unfortunate outcome the following day, in terms of newspaper publicity, would have been avoided. [29] I am in no doubt that leave to file the amended claim (assuming for the moment leave is required) is appropriate. I have already rejected the contention that there was a binding settlement between the parties in the events up to 29 March. The news report I regard as a matter between the newspaper itself and Property Ventures, not a matter which directly involves the Commissioner. In my view granting leave will not involve prejudice to Property Ventures, at least not illegitimate prejudice. To the contrary, I consider the fact of the receivership warranted the Commissioner's change of stance. [30] Finally, and perhaps most importantly, the amendment is one which is now necessary to enable the Court to determine the real controversy between the parties. Accordingly, not to grant leave would deny the opportunity for finality to be achieved in the context of this proceeding. Instead there would be the need for the Commissioner to file a further fresh proceeding raising the so-called new cause of action and for that proceeding to wend its way through the litigation process. There is no need whatsoever, in my view, for that course to follow. [31] For these reasons I grant leave to file the amended statement of claim (upon the assumption that leave is required).Result[32] The application for a stay and restraint of advertising is dismissed. The application for leave to file the amended statement of claim is granted. Costs on a 2B basis are awarded in relation to this hearing. [33] In light of this decision Mr Clay applied for a temporary stay pending a possible appeal. He seeks until 5.00 pm on Wednesday, 21 April 2010 to enableinstructions to be obtained from the director of Property Ventures. Ms Courtney did not oppose a stay of this limited duration. It is granted until that time. [34] I note that the proceeding is next to be called in the liquidation list on 3 May 2010. ____________________________________________________________________Solicitors: Crown Law, PO Box 2858, Wellington 6140 for Plaintiff Cousins & Associates, PO Box 2215, Christchurch 8011 for Defendant