Alpha Cars Wholesale (2018) Limited v Commissioner of Inland Revenue
[2019] NZHC 291
•28 February 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2384
[2019] NZHC 291
IN THE MATTER Section 290 of the Companies Act 1993 BETWEEN
ALPHA CARS WHOLESALE (2018) LIMITED
Applicant
AND
THE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 28 February 2018 Appearances:
Mr C Van der Merwe for the Commissioner
M S Sahu Khan a director of the Applicant, in attendance
Judgment:
28 February 2019
ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 28 February 2019, pursuant to r 11.3 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Inland Revenue, Auckland
Copy to:
M S Sahu Khan
ALPHA CARS WHOLESALE (2018) LTD v THE COMMISSIONER OF INLAND REVENUE [2019] NZHC
291 [28 February 2019]
[1] On 25 October 2018 Mr Navin Dutt Sharma, a director of the applicant (Alpha), purported to file an originating application for an order under s 290 of the Companies Act 1993 (the Act) setting aside a statutory demand issued by the respondent (the Commissioner) on 1 October 2018. The demand claimed the sum of
$10,804.89 for outstanding PAYE and/or GST, together with penalties and interest thereon. It is common ground that the demand was served at Alpha's registered office on 11 October 2018.
[2] 25 October 2018 was the last available day for Alpha to make any application to set aside the statutory demand. Under s 290(2) of the Act, any such application had to be filed and served within 10 working days of the service of the demand, and that period could not be extended.1
[3] The Commissioner filed a notice of opposition, and the application was called before Associate Judge Andrew on 16 November 2018. At the hearing before the Associate Judge on 16 November 2018, Mr M S Sahu Khan, a barrister, purported to represent Alpha. He contended that he had delegated authority to do so under s 130 of the Act. A copy of the delegation, signed by Mr Karishna Devi Sharma as sole director of Alpha, was produced to the Court. The document stated that Alpha's board delegated to Mr Sahu Khan power to take all necessary steps and exercise all powers in the interests of the company as regards [this proceeding] and in particular with the matters listed in hearing on Friday 16 November 2018.
[4] Associate Judge Andrew recorded in his Minute that Mr Sahu Khan advised the Court that he is a barrister but is currently the subject of a temporary suspension by the Law Society pending the outcome of a complaint process. The Associate Judge noted that the Commissioner disputed Mr Sahu Khan's authority to represent Alpha.
[5] Associate Judge Andrew expressed "significant reservations" as to whether Mr Sahu Khan had authority to represent Alpha as claimed. His Honour noted that "It is difficult to accept that s 130 can be used in such a way as to circumvent the rule in the Court of Appeal decision in Re G J Mannix,2 where it was held that a body
1 Companies Act 1993, s 290(3).
2 Re G J Mannix [1984] 1 NZLR 309 (CA).
corporate generally has to be represented in the High Court by a barrister and solicitor with a current practising certificate.
[6] Nevertheless, His Honour gave directions for the allocation of a half day fixture, on the basis that the question of Mr Sahu Khan's ability to represent Alpha and the substantive merits of the application would be addressed at the hearing.
[7] Written submissions were filed for the Commissioner, and on 31 January 2019 Mr Sahu Khan purported to file a submission on behalf of Alpha. Mr Sahu Khan advised that he had recently been appointed a director of Alpha. He submitted generally that there are substantive relevant issues to be determined, and that an injustice would be caused to Alpha if the demand were not set aside. He contended that Alpha is solvent, and he referred to various defences asserted by Mr Sharma in his affidavits.
[8] When the matter was called today, I directed that the matter of Mr Sharma's ability as a director to file documents in this Court, and Mr Sahu Khan's ability to represent Alpha, should be considered as a preliminary matter. Having heard from counsel and Mr Sahu Khan on that issue, I now give judgment on it.
[9] The law is now well settled on the circumstances in which a company director who is not a practising barrister or solicitor is permitted to file documents in, and appear before, this Court. In my judgment in AAM Ltd v Exotica Enterprise Ltd 3 I summarised the legal position as follows:
[26] In Dreamtech Designs & Productions Pty Ltd v Clownfish Entertainment Ltd, the Court of Appeal adopted the following statement of Stevens J in Kai Iwi Tavern Ltd v New Zealand Guardian Trust Company Ltd:
Applicable legal principles
[6] In Re G J Mannix Ltd this Court held that it is "well settled" that "a company has no right to be represented in the conduct of a case in Court except by a barrister or a solicitor in Courts or proceedings where solicitors have the right of audience …". Cooke J continued:
There is a cognate rule that, apart from statutory exceptions, a corporation has no right to bring or carry on proceedings in a Court
3 AAM Ltd v Exotica Enterprise Ltd [2018] NZHC 1399.
except by a solicitor. This refers to the filing of documents – writs, statements of defence, notices of appeal, etc.
[7] This principle has recently been affirmed by this Court in New Zealand Cards Ltd v Ramsay and Commissioner of Inland Revenue v Chesterfields Preschools Ltd. The policy reasons behind this principle are set out at [34] of Chesterfields. Briefly stated, the rule ensures that proper consideration is given to the validity of proceedings, decreases the likelihood that appellants will require indulgences in the rules of procedure, and ensures that those who appear before the Court are cognisant of the duties and responsibilities that are owed to the Court.
[8] The Court has a discretion to allow non-lawyers to appear on behalf of companies where appropriate. As Cooke J stated:
In general and without attempting to work out hard-and-fast rules, discretionary audience should be regarded, in my opinion, as a reserve or occasional expedient, for use primarily in emergency situations when counsel is not available or in straightforward matters where the assistance of counsel is not needed by the Court or where it would be unduly technical or burdensome to insist on counsel. Especially in minor matters, cost-saving could also be a relevant factor. A "one-man" company might be allowed to be represented by its owner if the Judge saw fit in a particular case. But it could not be right, for instance, to issue some sort of tacit continuing or general licence to an unqualified agent to appear in winding up or any other class of proceedings.
[Citations omitted].
[27] In a recent decision dismissing an application for leave to appeal, the Supreme Court in New Zealand Cards Ltd v Ramsay reaffirmed the general rule that companies are to be represented in the High Court by counsel rather than an officer of the company.4 The Supreme Court noted that, while the Courts are prepared to make exceptions to the general rule from time to time, the Court of Appeal in the case before it had taken the view that New Zealand Cards should be represented by counsel, and the Court of Appeal was entitled to make that direction.
[10] I also referred in AAM Ltd to a recent judgment of Jagose J in Oceanic Palms Ltd v KiwiRail Ltd, where the learned Judge said:5
[23] It is a well-established rule a company has no right to be represented in Court by other than a practising lawyer. The benefits of securing limited liability carry with them a range of obligations, of which the requirement to obtain legal representation in Court proceedings is one. The rule's rationale is to ensure proceedings are appropriately pleaded and managed, including by counsel with primary obligations to this Court. That is in part to ensure the company's and shareholders' interests are properly represented in any decision to participate in litigation.
4 New Zealand Cards Ltd v Ramsay [2015] NZSC 45 at [4].
5 Oceanic Palms Ltd v KiwiRail Ltd NZHC 679, [23]-[24].
[24] The Court retains discretion nonetheless to allow non-lawyers to appear on behalf of companies in exceptional circumstances.6 But those exceptional circumstances are generally to be regarded:7
… as a reserve or occasional expedient, for use primarily in emergency situations when counsel is not available or in straightforward matters where the assistance of counsel is not needed by the court or where it would be unduly technical or burdensome to insist on counsel.
[11] There is no evidence here of exceptional circumstances which might have justified Mr Sharma filing the setting aside application himself. On the face of it, he had the full 10 working days to take legal advice and ensure that Alpha's documents were properly filed by a solicitor instructed on its behalf. This was not an emergency situation, such as might have arisen, for example, if the sole director of the company was ill and unable to seek legal advice in time to get a setting aside application filed by a lawyer.
[12] Nor would admitting the application on any other basis be appropriate under any exception to the Re G J Mannix Ltd rule, for example as an "occasional expedient". If Mr Sharma's application and affidavit in this case were accepted it could very quickly become the norm for directors of companies to file applications of this sort.
[13] The same considerations apply in respect of Mr Sahu Khan's right of audience in this Court. He is not a currently practising barrister and solicitor, and in my view had no right to appear as Alpha's "delegate" at the hearing of 16 November 2018, or as a director of Alpha at today's hearing.
[14] Section 130 of the Act does not in my view affect at all the principles of legal representation in this Court discussed in Re G J Mannix Ltd and the cases that have followed it. Section 130 is broadly concerned with the power of a board of a company to delegate, but a board may only delegate "powers" under s 130 that it already holds. As the authorities referred to above show, a company has no power to file documents in this Court or be represented in this Court, otherwise than by a practising barrister or solicitor, except in the very limited range of circumstances described in the cases.
6 Re G J Mannix Ltd, above n 3, at 311. See also Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [25]-[34]; Kai Iwi Tavern Ltd v New Zealand Guardian Trust Company Ltd [2013] NZCA 199 at [6]-[8]; and Dreamtech Designs & Productions Pty Ltd v Clownfish Entertainment Ltd [2015] NZCA 491 at [8]-[10].
7 Re G J Mannix, above n 3, at 314.
Those circumstances do not in my view apply in this case, and the result is that the purported application to set aside the statutory demand was invalid and should be set aside. I make an order accordingly.
[15] Mr Sahu Khan made submissions to me on the Court's discretion to allow exceptions to the G J Mannix Ltd rule in particular cases. He referred to a number of passages from the decision of the Court of Appeal in Re G J Mannix Ltd, relying primarily on his long experience as a lawyer. He submitted that this is not a case where the conduct of the litigation has been left in the conduct of a lay person, with insufficient knowledge of the relevant law and procedure to properly represent the company.
[16] But that could not affect the validity or otherwise of the filing of the setting aside application, which was done by a lay person without any apparent involvement by Mr Sahu Khan. Equally, Mr Sahu Khan's submission would appear to open the door to any retired or other non-practising barrister having a right of audience before this Court on behalf of a company. I do not consider that is what the authorities intended, and I accept Mr Van der Merwe's submission that the Court's discretion to permit a person who is not a practising lawyer to represent a company before this Court is normally reserved for cases of urgency, or for routine matters where a lawyer's involvement might be regarded as unnecessary. In my view, this is not such a case.
[17] The striking out of Alpha's originating application means that the Commissioner has also succeeded on the substantive application itself. In those circumstances, the Commissioner is entitled to costs. In the particular circumstances of this case, it may be that an award of indemnity or above scale costs will be appropriate. The Commissioner may file and serve a memorandum on costs within 10 working days. Any memorandum in response is to be filed and served on Alpha's behalf, by a currently practising barrister or solicitor, within 10 working days of service of the Commissioner's costs memorandum.
[18] In light of my finding that the purported application for a setting aside order was a nullity, and is struck out, there is no need for me to consider the other issues raised by the parties, including the Commissioner's submission that the amount
claimed could not in any event have been challenged having regard to the provisions of s 109 of the Tax Administration Act 1994.
[19] I do not think this is a case where an order putting Alpha into liquidation immediately should be made under s 291 of the Act. In her affidavit for the Commissioner, Ms Richardson said that "It would be just and equitable for the demand to remain in place and that the company be placed into liquidation, should it fail to comply with the demand." In those circumstances, Alpha might not have appreciated that it was at risk of a liquidation order being made today. For that reason, I do not think it would be fair to make one. However, the debt should be paid immediately, and to that end, I make an order under s 291(1)(a) of the Act that Alpha is to pay the sum of $10,804.89 to the Commissioner by not later than 6 March 2019, failing which the Commissioner may make an application to put Alpha into liquidation.
[20] Finally, there may be some concern over the fact that Mr Sahu Khan appeared at the hearing before Associate Judge Andrew at a time when he was apparently suspended from practice. I have put that issue to Mr Sahu Khan this morning, and his response was that he was not appearing then as counsel (indeed, he told me today that he surrendered his practising certificate some three months ago), but as a delegate of the company under s 130 of the Act. I do not regard the s 130 submission as having any merit, and it seems to me that there may be a danger of suspended practitioners continuing to effectively practise (representing companies) while they are in fact suspended as barristers or solicitors. I am not aware of the terms of Mr Sahu Khan's suspension from practice, but I do consider that the circumstances are such that a copy of this judgment should be referred to the President of the New Zealand Law Society. I direct the Registrar to provide a copy to the President accordingly.
Associate Judge Smith
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