Accent Management Limited v Commissioner of Inland Revenue
[2014] NZHC 758
•14 April 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-2430 [2014] NZHC 758
IN THE MATTER of Section 290 of the Companies Act 1993 and an application for an order that statutory demand issued pursuant to Section 289 of the Companies Act 1993 be set aside
BETWEEN ACCENT MANAGEMENT LIMITED Plaintiff
ANDTHE COMMISSIONER OF INLAND REVENUE
Defendant
………………../continued
Hearing: On the papers
Counsel: GA Muir for plaintiffs
R Roff and SJ Leslie for defendant
Judgment: 14 April 2014
JUDGMENT OF FAIRE J [on costs]
This judgment was delivered by me on 14 April 2014 at 4pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Stainton Chellew, Auckland
Crown Law, Wellington
ACCENT MANAGEMENT LIMITED v THE COMMISSIONER OF INLAND REVENUE [2014] NZHC 758 [14 April 2014]
CIV-2013-404-2431
IN THE MATTER
of Section 290 Companies Act 1993 and an Application for an Order that Statutory Demand issued pursuant to Section 289 of the Companies Act 1993 be set aside
BETWEEN LEXINGTON RESOURCES LIMITED Plaintiff
ANDCOMMISSIONER OF INLAND REVENUE
Defendant
[1] Accent Management Ltd and Lexington Resources Ltd made applications to set aside statutory demands issued by the Commissioner of Inland Revenue on
18 April 2013.
[2] In a judgment I delivered on 2 December 2013 I ordered that:1
(a) Accent Management Ltd pay the sum of $3,250,265.74 within ten working days of this judgment and should a default in payment be made, the defendant may make application to put Accent Management Ltd into liquidation; and
(b)Lexington Resources Ltd pay the sum of $2,115,039,48 within ten working days of this judgment and should a default in payment be made, the defendant may make application to put Lexington Resources Ltd into liquidation.
[3] In respect of costs I recorded the following position:2
Counsel requested that I reserve costs and give them the opportunity of discussing the resolution of same. If the parties cannot agree and an order is sought, memoranda in support, opposition and reply shall be filed and served at seven-day intervals commencing 1 February 2014.
[4] The parties are unable to agree. Memoranda in support, opposition and reply have been filed.
[5] The memoranda raise the following issues for determination:
(a) The defendant’s submission that costs on the applications should be made and calculated pursuant to Category 2 Band B up until the date of the judgment I gave on 12 September 2013 in Bristol Forestry Venture Ltd v Commissioner of Inland Revenue3 and thereafter either
for the actual costs, that is indemnity costs or increased costs;
1 Accent Management Ltd v Commissioner of Inland Revenue [2013] NZHC 3197 at [42].
2 At [43].
3 Bristol Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 2384.
(b)The plaintiffs’ submission that it is premature to award costs because the plaintiffs have filed an appeal to the Court of Appeal in which there is a challenge made to this court’s jurisdiction to make the orders that I made on 2 December 2013;
(c) The plaintiffs’ submission that I should refuse or reduce costs in reliance on r 14.7. This issue has linked to it an application to admit further evidence to the effect that the defendant recklessly failed to disclose its knowledge of the existence, application and effect of s EH8(1) in order to procure orders of the hearing authority that did not represent the tax charge already imposed by Parliament. The claim is that the defendant had a litigation strategy to procure orders in the form mentioned. Those orders are the subject matter of the statutory demand that I had to consider. It is alleged by the plaintiffs that the defendant recklessly misled the hearing authority.
[6] I deal firstly with the third issue.
[7] In my view, Ms Roff correctly answers the essential thesis advanced. That is: that it is very doubtful that this evidence is relevant. But, even if it were admitted, it would not have led to a different result on the applications that I had to determine. The reason for that is set out in [30] through [34] of my judgment.
[8] Ms Roff drew attention to the fact that the same allegations have already been made and dismissed by Keane J in the judicial review proceedings,4 by Venning J5 and by the Supreme Court.6
[9] Accordingly, I refuse the plaintiffs’ request to adduce the additional evidence. I record there is no foundation for the application of r 14.7. In short, there is no basis for refusing an order for costs, or reducing the quantum of costs, on account of the
matter raised by the plaintiffs.
4 Accent Management Ltd v Commissioner of Inland Revenue (2010) 24 NZTC 24,126.
5 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] 1 NZLR 336.
6 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013]
1 NZLR 804 at [42].
[10] I next consider the second issue, namely whether it is premature to award costs because of the challenge to jurisdiction. This argument adds nothing to the matter that I have just analysed and, accordingly, I dismiss it for the same reason.
[11] That, then, leaves for consideration the defendant’s submissions and the first issue.
The Court’s approach to applications for costs
[12] Rule 14.1 gives the Court a discretion to order costs in relation to a step taken in a proceeding. That discretion is generally to be exercised in accordance with the specific rules contained in rr 14.2-14.10.7 In Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd it was said of the costs regime contained in what is now rr 14.2-14.10 that:8
there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary[.]
The test to be applied is entirely an objective and not a subjective one. The only reference which it is necessary to make towards actual costs is to be found in r 14.2(f), namely that an award of costs should not exceed the costs incurred by the party claiming the costs.9
[13] It is unnecessary that I review the matters that are set out in r 14.2 in light of the positions adopted by the parties. This is a Category 2 case and, to the extent that it is appropriate to deal with each step that was taken, Band B is the appropriate band.
[14] Rule 14.6 sets out the circumstances where increased or indemnity costs can be awarded.
[15] Rule 14.6 in relation to indemnity costs provides:
7 Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [19].
8 Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd
(2002) 16 PRNZ 662 (CA) at 668.
9 Glaister v Amalgamated Dairies Ltd, above n 7, at [14].
14.6 Increased costs and indemnity costs
(1) Despite rules 14.2 to 14.5, the court may make an order—
(a) increasing costs otherwise payable under those rules
(increased costs); or
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
….
(4) The court may order a party to pay indemnity costs if—
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious: rr 14.2-14.10.
[16] In Paper Reclaim Ltd v Aotearoa International Ltd the Court of Appeal considered an application for indemnity costs pursuant to the now r 14.6(4)(a).10
The Court emphasised the need to examine the specific grounds set out in the Rule for ordering indemnity costs.
[17] In Hedley & Ors v Kiwi Co-operative Dairies Ltd it was said:11
10 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA).
11 Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [8].
[8] Such authorities as there are indicate that indemnity costs are awarded where truly exceptional circumstances exist.
The court’s approach was approved in Bradbury v Westpac Banking Corporation.12
[18] The Court of Appeal said:13
While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:
(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b) particular misconduct that causes loss of time to the court and to other parties;
(c) commencing or continuing proceedings for some ulterior motive;
(d) doing so in wilful disregard of known facts or clearly established law;
(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
Each of these concerns conduct which would fall within r 14.6(4).
[19] Ms Roff submitted that the following matters justified an award of indemnity costs for steps taken after 12 September 2013, namely:
(a) It was inevitable that the plaintiffs’ application would be dismissed having regard to the judgment that I delivered in Bristol Forestry Ltd v Commissioner of Inland Revenue;14
(b)I gave a judgment in the Redcliffe proceeding which covered the same issues on 25 October 2013;15
(c) Both the Bristol and Redcliffe cases are factually and legally materially similar to these proceedings in that they involve attempts
12 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA).
13 At [29]–[30].
14 Bristol Forestry Venture Ltd v Commissioner of Inland Revenue, above, n 3.
15 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 2818, (2013)
26 NZTC 21-041..
by investors from the Trinity Scheme to set aside the defendant’s statutory demands for assessments in respect of the 1997-1998 tax year, which had been upheld by Venning J in the High Court,16 the Court of Appeal17 and the Supreme Court;18
(d)The plaintiffs’ application relied on the same grounds for setting the statutory demand which were dismissed in both the Bristol and Redcliffe cases;
(e) The plaintiffs’ application had sought to rely on the proposition that it was open to the High Court to not give effect to the Supreme Court’s decision in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue. That proposition was rejected in the Bristol decision as being contrary to the fundamental principles of established law. As a result, it was clear that the plaintiffs’ claim was without proper foundation and was certain to fail.
[20] Mr Muir sought to distinguish the case advanced in these proceedings from those analysed in both the Bristol and Redcliffe proceedings. He acknowledges that it is not necessary to develop the distinctions for the purposes of the analysis for costs. Be that as it may, I cannot see any real distinction that would justify a conclusion different from that which I recorded in my costs judgment in Redcliffe
Forestry Venture Ltd v Commissioner of Inland Revenue where I said:19
There can be no doubt that there has been a history of court application and challenge to the founding judgments, which I need not review because they are referred in my substantive judgment. Every case, with the exception of one, seems to have been taken on appeal. The plaintiff has been unsuccessful in all those attempts. I accept Ms Roff’s submission that the arguments advanced on the plaintiff’s behalf are groundless and are unsupported. The background evidence of challenge after challenge that occurs with this Trinity litigation has been the subject of numerous judicial comment. I do not overlook the submission made that there may well have been little alternative to the plaintiff continuing after my first judgment if the
16 Accent Management Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19-027.
17 Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 230, (2007)
23 NZTC 21,323 (CA).
18 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009]
2 NZLR 289.
19 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 3468 at [17].
plaintiff wished to keep alive its rights to challenge the statutory demand. The point is, however, that if I am proved to be wrong, then that can be corrected at the appellate review of this case. If I am proved to be correct, the history of this case simply establishes that a justification for indemnity costs in terms of r 14.6(4) exists. Any one of the matters referred to in the Court of Appeal in Bradbury v Westpac Banking Corporation can apply here.
[21] The quantum of costs as claimed has not specifically been put in issue by the plaintiffs. I am satisfied that there is a proper basis for the formulation of costs based on Category 2 Band B up until 12 September 2013 and that thereafter costs on an indemnity basis should be awarded. In terms of the material produced to me, that discloses that the order for costs should be $26,013.65 and disbursements of
$2,529.26.
[22] Accordingly, I order that the plaintiffs pay the defendant’s costs in relation to
both applications in a total sum of $26,013.65 and disbursements of $2,529.26.
Faire J
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