THE COMMISSIONER OF INLAND REVENUE V TRANZ EARTH LIMITED HC AK CIV 2006-404-007891

THE COMMISSIONER OF INLAND REVENUE V TRANZ EARTH LIMITED HC AK CIV 2006-404- 007891 7 May 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-007891IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND TRANZ EARTH LIMITED Defendant Hearing: 7 May 2007 (on the papers) Counsel: A Pell for plaintiff M Tolhurst for defendant Judgment: 7 May 2007 at 1630JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for costs]Solicitors: Inland Revenue Department, PO Box 76 198, Manukau City for plaintiff City Law, PO Box 6086, Auckland for defendant[1] On 28 March 2007 I struck out the plaintiff's application to place the defendant company into liquidation and appoint a liquidator and also the defendant's application to restrain the publication of advertising of this proceeding. I directed that if the parties could not agree memoranda in support, opposition and reply shall be filed and served at seven day intervals in relation to the question of costs. [2] A memorandum was filed by counsel for the Commissioner seeking costs on a 2B basis. As a result of that memorandum I issued a minute reminding counsel for the defendant of the order that had been made in relation to memoranda on costs. What followed was defendant counsel's memorandum of 18 April 2007 and a memorandum in reply from counsel for the plaintiff dated 23 April 2007. [3] In fixing costs it is appropriate that I refer briefly to the approach, which the Court must take on an application for costs. Rule 46 provides that costs are to be in the discretion of the Court. In Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd CA 296/01 29 September 2002 the Court of Appeal, in noting the Court's over-riding discretion pursuant to r 46 said:there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Council. We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.[4] The general principles to be applied in the exercise of that discretion are those contained r 47. Subrule (a) provides that:The party who fails with respect to a proceeding should pay costs of the party who succeeds.[5] In Commerce Commission v Southern Cross Medical Care Society [2004] 1 NZLR 491 the Court of Appeal, referring to the authorities said in relation to costs:In the interests of predictability and expedition, Courts will be less inclined to depart from the prescribed approach. The prescribed approach includes the presumption that costs follow the event. However, we do not think that the Court should hesitate to depart from that approach where clear reason for it is shown.[6] In Glaister & Ors v Amalgamated Dairies Ltd & Anor [2004] 2 NZLR 606 the Court of Appeal endorsed the proposition it made in the earlier decision inMansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd. It noted that if there was any departure from the costs regime as set out by the High Court Rules that could only be done on a particularised and principled way. [7] It is apparent from counsel's memorandum, which need not be analysed in detail, that the plaintiff, the Commissioner of Inland Revenue, elected not to proceed with the application as a result of amended returns having been filed in respect of the taxation liability claim and a finding based on those amended returns that no tax was due and owing. [8] The problem created by this application is a breach of a statutory obligation to file returns in the first place and by the defendant. The second problem, however, is the use of winding up proceedings for, effectively, debt collection purposes. [9] The use of the Companies Court for debt collection purposes is inappropriate. More particularly, the use of a statutory demand for other than providing the foundation for the appointment of a liquidator in terms of s 241 of the Companies Act 1993 is also inappropriate. The judgments of Heath J, in Keystone Ridge Ltd v City Sales Ltd HC AK M549im02 19 July 2002, and Master Lang, in Insolare Investments Ltd v Fetherston HC AK M1042im02 17 October 2002, emphasise the need for creditors to take care before issuing statutory demands that there is in fact no dispute as to the debt. Service of the statutory demand on a company requires it to work within a very tight timetable imposed by s290 of the Companies Act 1993. If it fails to so act, then the presumption created by 287 applies. [10] When I apply rr 46 and following of the High Court Rules to what has occurred in this case, the following points are significant. [11] The plaintiff, Commissioner, in fact has failed with respect to the proceeding and prima facie, therefore, in terms of r 47(a) should pay costs. That position, however, has been brought about by breaches of statutory duty to file tax returns by the defendant taxpayer which, in terms of r 48D, justify a refusal to order any costsin favour of the defendant. My comments apply equally to the application to restrain advertising because it was simply a step in the same proceeding. [12] When I apply the above analysis, I reach the conclusion that orders for costs either way are not justified and that the proper course is simply to dismiss both applications for costs.Orders[13] There will be no orders for costs in this proceeding. _____________________ JA Faire Associate Judge