Commercial Management Ltd v Commissioner of Inland Revenue
[2020] NZHC 891
•4 May 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2740
[2020] NZHC 891
IN THE MATTER of an appeal under s 370 of the Companies Act 1993 BETWEEN
COMMERCIAL MANAGEMENT LTD
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Intervener
CIV-2019-404-2742 IN THE MATTER
of an appeal under s 370 of the Companies Act 1993
BETWEEN
EQUITY CAPITAL INVESTMENTS LTD
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Intervener
Hearing: 12 March 2020 Counsel:
A Beck for appellants
G S Caro and M Deligiannis for Intervener
Judgment:
4 May 2020
JUDGMENT OF KATZ J
This judgment was delivered by me on 4 May 2020 at 4:00pm pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors:Douglas Burgess, Auckland Crown Law, Wellington
Counsel: A Beck, Greytown
COMMERCIAL MANAGEMENT LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 891 [4 May 2020]
Introduction
[1] This is another chapter in the lengthy saga of litigation arising out of the “Russell template” tax avoidance arrangements devised by the late John George Russell.
[2] The appellants have both filed appeals against decisions of the Registrar of Companies declining to restore two companies to the companies register. Before their appeals can be heard, however, two interlocutory applications must be determined, namely:
(a)an application by the Registrar seeking to be struck out as a respondent to both appeals; and
(b)an application by the Commissioner of Inland Revenue seeking leave to intervene in both appeals.
Background
[3] The appellants, Commercial Management Ltd and Equity Capital Investments Ltd, were previously under the control of Mr Russell. They are now under the control of one of his long-standing business associates.
[4] Commercial Management was a shareholder of Marketing Agencies Ltd (“Marketing”), a company that was removed from the companies register on 23 April 1998. Equity Capital was a shareholder of Mountforts Pharmacy Ltd (“Mountforts”), a company that was removed from the companies register on 22 December 2011. Marketing and Mountforts were both parties to a Russell template tax avoidance scheme.1
[5] In 2018, the appellants applied to the High Court for orders restoring Marketing and Mountforts to the companies register, on the “just and equitable” ground.2 The basis on which restoration was sought was that those companies had
1 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019) 29 NZTC 24-019 at [10].
2 Companies Act 1993, s 329.
potential historic GST claims against the Commissioner that they wished to pursue by way of challenge proceedings. The Commissioner unsuccessfully opposed restoration in the High Court, and the restoration applications were granted.3 The Registrar accordingly restored Marketing and Mountforts to the companies register. Both companies then issued challenge proceedings against the Commissioner.
[6] Meanwhile, the Commissioner appealed to the Court of Appeal. The Court of Appeal held that the approach adopted in the High Court was wrong as a matter of principle and allowed the appeals.4 It directed that:
[75] The order that the removed companies be restored to the Companies Register is set aside.
[7] The Registrar then amended the companies register to show that Marketing and Mountforts had not been restored.
[8] The appellants then made a further application to the Registrar to have the companies restored (again), pursuant to s 328 of the Companies Act 1993. That section provides, amongst other things, that the Registrar must, on the application of a person who was a shareholder at the time of removal, restore a company to the register if the Registrar is satisfied that at the time of its removal it was a party to legal proceedings. The appellants submitted that, because Marketing and Mountforts had issued challenge proceedings against the Commissioner following the High Court decision, the Registrar was required to restore them to the register.
[9] The Registrar rejected that submission and, in a decision dated 25 November 2019, declined to restore Marketing and Mountforts to the register. That decision is the subject of the present appeals. The Registrar’s position, in essence, is that when he (or his delegate) implemented the Court of Appeal’s decision by amending the register to show that the companies had not been restored, he was not “removing” the companies from the register within the meaning of the Companies Act. Rather, the
3 Commissioner of Inland Revenue v Commercial Management Ltd [2018] NZHC 2224, 28 NZTC 23-068.
4 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019) 29 NZTC 24-019 at [72].
(wrongful) restoration of the companies to the register was simply reversed, restoring the status quo as it was prior to the High Court decision.
[10] The key issue on appeal will likely be whether the steps taken by the Registrar to implement (or attempt to implement) the Court of Appeal’s decision amounted to the “removal” of Marketing and Mountforts, within the meaning of the Companies Act (including in particular s 328 of the Act).
Should the Registrar have been named as a respondent to the appeals?
[11] The Registrar has been named as the sole respondent to both appeals. He says that this was in breach of r 20.9(2) of the High Court Rules, and seeks an order striking him out as respondent.
Legal framework
[12]Rule 20.9(2) of the High Court Rules 2016 provides that:
20.9 Contents of notice of appeal
(2)The notice of appeal must not name the decision-maker as a respondent.
[13] The principle that decision-makers should not “enter the fray”5 by becoming an active protagonist in appeals from their decisions is a longstanding one.6 In Fonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd, after comprehensively reviewing the relevant case law, Miller J summarised the various policy rationales for r 20.9(2) as follows:7
[19] Several rationales for the principle that a decision-maker ought not become a protagonist in an appeal from its own decision emerge from the
5 Engineers Union v Arbitration Court [1976] 2 NZLR 283 (CA) at 285-286.
6 Engineers Union v Arbitration Court [1976] 2 NZLR 283 (CA) at 285-286; Licensing Control Commission v Lion Breweries Limited (1983) 3 NZAR 468 (HC) at 472; Moonen v Broadcasting Standards Authority (1995) 8 PRNZ 335 (HC) at 337; Portage Licensing Trust v Auckland District Licensing Agency [1997] NZAR 374, (1997) 10 PRNZ 554 (HC) at 556; In re Baise-Moi [2005] NZAR 214 (CA) at [52]; Secretary for Internal Affairs v Pub Charity [2013] NZCA 627, [2014] NZAR 177 at [27].
7 Fonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd (2009) 19 PRNZ 824 (HC). More recently, see Re The Foundation for Anti-Aging Research and the Foundation for the Reversal of Solid-State Hypothermia [2016] NZHC 2328 (HC) at [46].
authorities and the Rules: involvement in an appeal from its own decision lends the decision-maker an appearance of partiality; in particular, it is difficult to be and appear impartial in proceedings before the decision-maker that may follow the appeal; alternatively, the decision-maker may be functus officio, with no further role to play in the case; the decision-maker can provide appropriate assistance without being named; it is for the Court to decide when such assistance is appropriate, and the Rules confer a discretion not to hear from the decision-maker so long as it is not a party; and the decision-maker may be put to unnecessary expense if named.
[14] It has also long been recognised, however, that in appropriate cases decision-makers can provide valuable assistance to the Court, without formally being joined as a party.8 Hence, although decision-makers are not to be named as respondents, they are generally entitled to be heard on appeals from their decisions pursuant to r 20.17, which provides:
20.17 Decision-maker entitled to be heard on appeal
The decision-maker is entitled to be represented and heard at the hearing of an appeal on all matters arising in it, unless—
(a) the decision-maker is a District Court; or
(b) the court otherwise directs.
[15] Further, pursuant to r 4.56, a decision-maker may be added as a respondent, notwithstanding the prohibition in r 20.9(2), if the court considers it to be necessary.
Previous practice in relation to naming the Registrar as a respondent to appeals
[16] Mr Beck, for the appellants, pointed out that the Registrar has been named as a respondent to a number of appeals in the past.9 Mr Beck also noted that a number of other regulatory decision-makers regularly appear as respondents in appeals and argue in favour of their own decisions.10
8 Licensing Control Commission v Lion Breweries Limited (1983) 3 NZAR 468 (HC) at 472; Portage Licensing Trust v Auckland District Licensing Agency [1997] NZAR 374, (1997) 10 PRNZ 554 (HC) at 556; Bleakley v Registrar of Friendly Societies and Credit Unions [2017] NZHC 471 at [20]-[23].
9 See for example The Paint Factory v Registrar of Companies (2000) 15 PRNZ 42; Davidson v Registrar of Companies [2011] 1 NZLR 542; Brand v Registrar of Companies [2016] NZHC 2983; Jacomb v Registrar of Companies [2013] NZHC 2486 and Clarke v Registrar of Companies [2018] NZHC 1608.
10 Mr Beck gave the following examples: Merta v New Zealand Transport Agency [2019] NZDC 8826; Taranaki-Whanganui Conservation Board v Environmental Protection Authority [2018] NZHC 2217; Medero v Ministry of Social Development [2019] NZHC 2204.
[17] Mr Caro, for the Registrar, acknowledged that the Registrar has been named as respondent to appeals in the past, but noted that the Registrar has not always taken an active role in such appeals, particularly where there is another respondent who can take the contradictor role. Further, where the Registrar has participated, his role has generally been to provide assistance to the Court, rather than to fully “enter the fray” as a protagonist. This is more consistent with the role envisaged by r 20.17 (decision-maker entitled to be heard on appeal) than that of a true party.
[18] Mr Caro explained that in recent times the Registrar has taken a more proactive approach and has objected to being named as a respondent to appeals, in breach of r 20.9(2). Naming the Registrar as a respondent to appeals has resource implications for the Registrar and exposes him to adverse costs awards. The Registrar’s view is that if his input would be of assistance to the Court, then the appropriate course is for him to be represented and heard pursuant to r 20.17, or for him to be formally joined as a respondent pursuant to r 4.56.
[19] In most cases there would appear to be little or no advantage to an appellant in insisting that the Registrar to remain as a respondent, against his wishes (other than, possibly, an ability to seek costs in the event of a successful appeal). Indeed, this appears to be the first case in which a request or application by the Registrar to be removed as a party has resulted in a fully contested hearing of the issue. The reason for that, at least in part, appears to be that the appellants anticipate that if the Registrar is removed as a respondent it will increase the likelihood of the Commissioner’s application to intervene being granted.
[20] I acknowledge that the Registrar has been named as a respondent in a number of previous appeals, as have other decision-makers. However, the fact that the Registrar did not object to being so named in those cases does not preclude him from doing so now. I will therefore consider the submissions made by the parties on the correct interpretation of r 20.9(2) on their merits.
How should r 20.9(2) be interpreted?
[21] The appellants submitted that the High Court Rules, as a subordinate form of legislation, should be interpreted broadly.11 Mr Beck drew a distinction between judicial decisions, where there will almost always be another party to argue the appeal, and regulatory or administrative decisions, where there will often be no other party to the decision who can be named as respondent. Mr Beck submitted that r 20.9(2) was drafted to address the former situation, not the latter, and should be interpreted accordingly.
[22] In support of the submission that a broad interpretation is called for, Mr Beck relied on Schmidt v BNZ, in which Jeffries J was confronted with competing interpretations of a procedural rule relating to security for costs. His Honour observed that:12
Procedural rules are the servants of Court proceedings to achieve just, speedy and at the least cost, expedition of cases. The construction of Court rules should always be approached with care but with a readiness to apply them to meet the justice of the case which is manifest before a Court. Whenever difficulties arise on interpretation the Court should always have recourse to R 4 which states:
“4.Construction — These rules shall be so construed as to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application.”
Procedural rules are to a very significant degree generalised in their words, for they are to cover all situations for which they are to be applied. For that reason alone such an injunction as is contained in R 4 enjoins a liberal and large construction.
[23] Schmidt does not assist the appellants here, however. It dealt with a situation of genuine ambiguity about the interaction of two subsections of the relevant rule. Two interpretations were open on the wording of the relevant provisions. Jeffries J preferred the construction which, in his view, best accorded with the purpose of the rule even though, on a literal reading, another interpretation was available.
11 Although the High Court Rules are drafted by the Rules Committee, I note that s 147 of the Senior Courts Act 2016 deems them to be part of that Act.
12 Schmidt v Bank of New Zealand Ltd [1991] 2 NZLR 60 at 6.
[24] In this case, however, the rule is unambiguous: “the notice of appeal must not name the decision-maker as a respondent”.13 It is not a narrow or legalistic reading of the Rules to interpret “must not” as “must not”; there is simply no other interpretation available.14
[25] I also note that the drafting history of the Rules does not support the wide interpretation of r 20.9(2) advanced by the appellants. Rule 20.9(2) has been in effect since 1 February 1998 (originally as r 706(3)). In 2003 the Rules were amended (by the addition of r 20.9(3), originally r 709(3)) to exclude appeals under the Commerce Act 1986 from the scope of r 20.9(2). It was obviously open to the drafters of the Rules, at that time, to exclude other decision-makers (or other circumstances) from the operation of the rule. They did not do so. Nor have any further exceptions or qualifications been added since 2003.
[26] In some cases, the inability to name the decision-maker as a respondent may give rise to difficulties. In Bleakley v Registrar of Friendly Societies and Credit Unions Ellis J observed that the application or r 20.9(2) can on occasions be far from satisfactory.15 Similarly, the learned authors of McGechan on Procedure note that r 20.9(2) could raise difficulties where there is no other party to an appeal.16 In Canterbury Development Corp v Charities Commission the Court suggested that, in the absence of an available respondent, the intituling should simply be “In re Canterbury Development Corporation”.17
[27] Ultimately, if there are good grounds to amend the rule, then that is a matter for the Rules Committee. I must interpret the rule, however, as it is currently drafted. It is clear and unambiguous. The decision-maker must not be named as a respondent. If a party wishes to join the decision-maker as a respondent, they are required to make an application under r 4.56, on the basis that their presence before the Court is necessary to adjudicate on and settle all questions involved in the proceeding. The
13 High Court Rules 2016, r 20.9(2).
14 As noted in Bleakley v Registrar of Friendly Societies and Credit Unions [2017] NZHC 471 at [23].
15 Bleakley v Registrar of Friendly Societies and Credit Unions [2017] NZHC 471 at [23].
16 Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updated to 9 December 2019) at [HR20.9.01].
17 Canterbury Development Corp v Charities Commission [2010] 2 NZLR 707 (HC) at [108].
appellants, however, did not make such an application. Even if they had, I would not have been persuaded that joinder under r 4.56 is appropriate in this case.
[28] The cases where a decision-maker has been joined pursuant to r 4.56 are generally those where the decision-maker is the only available contradictor.18 That is not the situation here. The Commissioner has applied to be joined as an intervener and, for the reasons I set out below, it is my view that that application should be granted. Even if that were not the case, however, the Registrar’s presence before the Court, as a party, is not necessary. The issue on appeal (which I have summarised at
[8] to [10] above) is a narrow one. The Registrar is willing to provide any assistance the Court may require, without being joined as a party. It is not necessary to join him as a respondent in order to adjudicate on and settle all questions involved in the proceeding.
Does s 370 of the Companies Act require a different outcome?
[29] The appellants submitted, in the alternative, that r 20.9(2) is inconsistent with s 370 of the Companies Act (read together with r 4.1 of the High Court Rules) and that s 370, as statute law, must prevail.
[30] Section 370 empowers the court, on hearing an appeal from a decision of the Registrar, to approve the Registrar’s act or decision or give such directions or make such determination in the matter as the court thinks fit.
Rule 4.1 provides:
4.1Limit on parties
The number of persons named or joined as parties to a proceeding must be limited, as far as practicable, to—
(a) persons whose presence before the court is necessary to justly determine the issues arising; and
(b) persons who ought to be bound by any judgment given.
18 Goodman Fielder v Commerce Commission [1987] 2 NZLR 10 (CA) at 13 and 20.
[32] The appellants submitted that these two provisions, when read together, require that the Registrar be joined as a party:
The Registrar’s presence before the Court is necessary in order that the Registrar be bound by the Court’s decision. While the Registrar is a government official, it is essential that any decision made by the Court be one that is binding on the Registrar, and enforceable accordingly.
[33] In my view this submission is founded upon a misinterpretation of the relevant provisions, and their interrelationship. Section 370 authorises the appellate court to give such directions to the Registrar as it thinks fit. Obviously, the Registrar will be bound by any such directions. Section 370 does not require that he be a party to the relevant appeal in order to be bound.
[34] Rule 4.1 simply provides that, as far as practicable, the number of parties should be limited to those parties who are necessary or who ought to be bound. The rule is a prohibition on adding parties who are neither necessary to the decision nor bound by it. The rule does not require the naming or joinder, as parties, of persons who will be bound by a decision in any event. Either pursuant to statute or common law, such entities will usually include lower Courts and Tribunals, as well as other administrative and judicial bodies and decision-makers. As Miller J observed in Grate Kiwi Cheese, when declining an application that the Commerce Commission be joined as a party to an appeal, “the Commission will be bound by this Court’s judgment whether or not it is named…”19 Similarly, in this case, the Registrar will be bound by the Court’s judgment whether or not he is named as a respondent.
[35] I further note that, if the appellants’ submission is correct, and decision-makers must be named as respondents to appeals in order to be bound by the outcome, this would either render r 20.9(2) a dead letter, or would have the startling consequence that decision-makers would not be bound by the outcome of appeals where appellants complied with r 20.9(2). Clearly this cannot be correct.
19 Fonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd (2009) 19 PRNZ 824 (HC) at [34].
Conclusion
[36] Rule 20.9(2) is clear on its face. It states that “the notice of appeal must not name the decision-maker as a respondent”. There is no basis to interpret the rule as meaning anything other than what it says. The Registrar was named as a respondent, in breach of the rule. He should therefore be removed as a respondent.
Should the Commissioner be permitted to intervene?
[37] The court has a discretion, in its inherent jurisdiction, to permit interested parties to intervene, participate and be heard in a proceeding. Strictly, such persons are not parties to the proceeding; it is simply that the court has granted them the right, to a greater or lesser extent, to participate and be heard in the proceeding.20
[38] The onus rests on the would-be intervener to show that its intervention is appropriate.21 The power is broad in nature but is exercised with restraint to avoid the risk of expanding issues, elongation of hearings and increasing the costs of litigation.22
[39] In an appeal involving issues of general and wide importance, the Court may grant leave when satisfied that it would be assisted by submissions from the intervener.23 Leave to intervene may also be granted where intervention is likely to improve the information before the court on issues wider than those addressed by the parties.24 Intervention may be permitted where the party seeking to intervene has interests in the outcome of the case such that it would be unjust to decide the issues in the absence of that party.25 Generally, however, leave will not be granted when the appeal is essentially one of statutory interpretation and is unlikely to involve broad questions of policy.
[40] The appellants submitted that the Commissioner’s interests will not be directly engaged as she was not a party to the Registrar’s decision that is under appeal. Further,
20 Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updated to 9 December 2019) at [HR4.1.01].
21 Seales v Attorney-General [2015] NZHC 828 at [43], citing Re Northern Ireland Human Rights Commission (Northern Ireland) [2002] UKHL 25 at [32].
22 Hawke v Accident Compensation Corporation [2014] NZCA 552 at [9].
23 Hawke v Accident Compensation Corporation [2014] NZCA 552 at [9].
24 Taylor v Key [2014] NZHC 3306, [2015] NZAR 730, (2014) 22 PRNZ 533 at [9].
25 Taylor v Key [2014] NZHC 3306, [2015] NZAR 730, (2014) 22 PRNZ 533 at [9].
a successful appeal will simply restore the status quo, with the companies being restored to the register and the Commissioner a party to ongoing litigation with the companies.
[41] I reject that submission. On the contrary, it is my view that the Commissioner has an interest in the outcome of the appeal such that it would be unjust to decide the issues in her absence.
[42] As I have outlined above, the Commissioner opposed the appellants’ original application to the High Court to restore Marketing and Mountforts to the register. The Registrar abided the decision of the Court. The Commissioner was unsuccessful in her opposition at first instance but was successful on appeal. The Court of Appeal set aside the order of the High Court that Marketing and Mountforts be restored to the register. The Registrar’s acts in purported implementation of the Court of Appeal’s decision lie at the heart of these appeals. Indeed, it could be argued that the appellants’ request to the Registrar to restore Marketing and Mountforts to the register (again) is a collateral attack on the Court of Appeal’s decision. At the very least, if the current appeals were to succeed, the practical effect would be to deny the Commissioner the fruits of her victory in the previous proceeding.
[43] Although the key issue raised by the appeal is one of statutory interpretation, it is not one devoid of public policy. The Commissioner has a statutory duty to protect the integrity of the tax system26 and she is charged with the care and management of taxes.27 Marketing and Mountforts are both companies that were used in “Russell template” tax avoidance arrangements.28 The Court of Appeal found that restoring the companies would undermine the integrity of the tax system in the eyes of law-abiding taxpayers and was “plainly contrary to the public interest”.29
26 Tax Administration Act 1994, s 6.
27 Tax Administration Act 1994, s 6A.
28 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019) 29 NZTC 24-019 at [4].
29 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019) 29 NZTC 24-019 at [70].
Restoration of the companies to the register was described by the Court as a “perverse outcome”.30
[44] Determining whether the Registrar’s actions in implementing (or attempting to implement) the Court of Appeal decision constituted “removal” of the companies in terms of the Companies Act (interpreted purposively) is an issue that cannot be decided in a vacuum. It will be necessary for the Court to understand the full context in which those actions occurred. The Commissioner is the most logical person (apart from the appellants) to assist the Court with the relevant background and to make submissions as to how the Registrar’s actions should be interpreted, in light of the relevant background.
[45] Given the context I have outlined, I am satisfied that the Commissioner’s interests in protecting the integrity of the tax system are directly engaged by the appeals. Her involvement is likely to be of considerable assistance to the Court. Overall, the Commissioner clearly has an interest in the outcome of the appeals to the extent that it would be unjust to decide the issues in her absence. I am therefore satisfied that her application to intervene should be granted.
Result
[46]I order as follows:31
(a)The Registrar of Companies is struck out as a respondent to both appeals.
(b)The Commissioner of Inland Revenue is joined as a non-party intervener to both appeals.
[47] The parties are encouraged to resolve any costs issues between counsel. If that is not possible, leave is reserved to the Registrar and the Commissioner to file costs memoranda within 10 working days of this judgment. Any memorandum in response
30 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479, (2019) 29 NZTC 24-019 at [70].
31 The intituling of this Judgment reflects these orders.
from the appellants is to be filed within a further five working days. A decision on costs will then be made on the papers, unless further assistance is required from counsel.
Katz J
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