Commissioner of Inland Revenue v Boss Transport Limited

[2020] NZHC 3278

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2019-485-758

[2020] NZHC 3278

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

BOSS TRANSPORT LIMITED

Defendant

CIV-2019-485-760

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

BOSS TRANSPORT REPAIRS LIMITED

Defendant

CIV-2019-485-761

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

BOSS TYRE SERVICES LIMITED

Defendant

Counsel:	A Sharratt for Commissioner of Inland Revenue G Dewar for Defendants
Judgment:	11 December 2020

COSTS JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[On the papers]

THE COMMISSIONER OF INLAND REVENUE v BOSS TRANSPORT LIMITED [2020] NZHC 3278

[11 December 2020]

[1]    This  costs  judgment  replaces  a  judgment  issued  on  4 and  recalled   on   7 December 2020. It was necessary to recall the earlier judgment because I had overlooked submissions made on behalf of the Commissioner of Inland Revenue by Ms Sharratt, and indeed proceeded on the basis that a costs claim by the three defendants was unopposed. I therefore approach the issue of costs afresh.

[2]    The three defendant companies are members of a group. All three fell into arrears in terms of their tax obligations. The amounts involved were substantial. In October 2018 the Commissioner of Inland Revenue commenced recovery action by serving statutory demands. When the defendants did not comply with these demands, proceedings were commenced in November 2019. In late 2020, with the Commissioner of Inland Revenue’s applications for orders winding up the defendants set down for hearing, the defendants cleared their tax debts. On 21 September 2020 the Commissioner of Inland Revenue filed a notice of discontinuance in relation to all three proceedings.

[3]    The submissions made by Ms Sharratt on behalf of the Commissioner of Inland Revenue and Mr Dewar on behalf of the defendants are polarised, with both parties seeking costs. The gulf between the parties on the costs issue appears to reflect radically different perspectives as to the appropriateness of the Commissioner of Inland Revenue’s approach, and different starting points for the analysis of costs.

[4]    Ms Sharratt submits that the Commissioner was successful in her claims. She referred me to r 14.2(1)(a) of the High Court Rules 2016 which provides that the successful party in any proceeding — interlocutory or final — is prima facie entitled to a costs award. She referred me to Greys Avenue Investments Ltd v New Zealand Mint Limited.1 That case too involved winding up proceedings. There, a statutory demand was withdrawn when the debt was paid. Ms Sharratt submitted that the case established or reinforced that the successful party in terms of r 14.2(1)(a) is the party who has succeeded by reference to the substantive outcome of the case, and that in the case of a statutory demand that involves establishing that the party serving the

1      Greys Avenue Investments Ltd v New Zealand Mint Limited [2015] NZHC 2633.

statutory demand has been determined to be a creditor for the amount of that demand. She quoted Associate Judge Bell in Greys Avenue Investments as saying:2

If the outcome is that the creditor is paid or arrangements are made for payment, the creditor will be vindicated. If the creditor agrees to withdraw the demand as part of those arrangements, that does not make the creditor the loser. There is no reason to require the creditor to pay costs.  The situation is a little different from those of creditors who withdraw bankruptcy or liquidation applications on being paid or accepting arrangements for payment. They are invariably entitled to costs.

[5]    Essentially, Ms Sharratt submitted that as the Commissioner of Inland Revenue had served statutory demands in respect of the defendants’ outstanding tax obligations, and the defendants had ultimately accepted responsibility for the payment of the same, the Commissioner of Inland Revenue was wholly successful and entitled to her costs.

[6]    As to quantum, Ms Sharratt calculated the Commissioner of Inland Revenue’s actual costs were less than scale costs on a 2B basis, and sought these:

(a)in relation to Boss Transport Ltd, costs of $2,324 plus disbursements of

$829.95 giving a total of $3,153.95;

(b)in relation to Boss Transport Repairs Ltd, costs of $2,324 plus disbursements of $831.11 giving a total of $3,155.11;

(c)in relation to Boss Tyre Services Ltd, costs of $2,324 plus disbursements of $831.11 giving a total of $3,155.11.

[7]    At the risk of putting words in his mouth, I doubt whether Mr Dewar for the defendants would argue with much of what Ms Sharratt said of the way that the costs regime generally operates. That is not his case. He submits not only that the Commissioner of Inland Revenue should not have her costs, but that the Court should award costs to the defendants on the discontinuance ($6,000 in each proceeding, so a total of $18,000) because “… the plaintiff Commissioner has behaved arbitrarily, unreasonably and oppressively in the conduct of this litigation…”.

2 At [33].

[8]    Mr Dewar says that the defendants “… through the unilateral discontinuance, have lost the right to maintain the defence they brought to the Court and to challenge the plaintiff’s evidence, but, in any event, are entitled to costs pursuant to r 15.23”. I do not follow the first part of that sentence. After the payment of the taxes involved, the Commissioner discontinued the proceedings. At that point, there was no case against the defendants in respect of which they might maintain a defence. However, to the extent that the defendants are saying that they are entitled to bring to the Court’s attention matters that might otherwise have formed part of their defence as a basis for a claim for costs pursuant to r 15.23, the submission is readily understandable.

[9]    As Mr Dewar goes on to submit, r 15.23 provides that in the absence of a defendant’s agreement to the discontinuance of a proceeding, prima facie a discontinuing plaintiff becomes obliged to pay costs to the defendant. Mr Dewar referred me to Associate Judge Abbott’s judgment in FM Custodians Ltd v Pati3 where his Honour concluded that in considering an application by a defendant for costs on a discontinuance the Court was entitled to take into account a wide range of considerations including such things as the reasonableness of the parties respectively having commenced and defended the proceeding, and their conduct of it.

[10]   I accept that the defendants are entitled to make the application they do for costs pursuant to r 15.23, and that the Court must take a broad view of the matter in assessing both whether the defendants should secure an award of costs and the quantum of the same.

[11]   Mr Dewar says that the defendants fell into arrears with the payment of tax as a result of events outside their control namely what he describes as “unilateral and coercive actions of the New Zealand Transport Agency” in late 2018 and defalcations by the group’s National Manager of a substantial sum of money which came to light in early 2019. Mr Dewar says that the defendants never denied their obligation to pay outstanding tax and that those responsible for their governance took immediate action to place them in a position to do so. He adds that had the companies been wound up

3     FM Custodians Ltd v Pati HC AK CIV-2012-404-802 [31 July 2012].

this would have resulted not only in the tax not being recovered but in as many as 40 staff members losing their jobs and the destruction of a viable business.

[12]   In those circumstances, Mr Dewar describes the actions of the Commissioner of Inland Revenue through the officers concerned as having “relentlessly pursued litigation when it was unreasonable to do so and appears to impute to her the motive of “avoidance of exposure of unreasonable conduct” by discontinuing the proceeding.

[13]   On the basis of that argument  – expressed in  the very strongest terms  –    Mr Dewar refers to aspects of the affidavit evidence before the Court and in doing so identifies what he submits are examples not only of unreasonable vigour on the part of the Commissioner of Inland Revenue in pursuing these claims but the presentation by her through officers of false evidence.

[14]   Mr Dewar points out some apparent inaccuracies in the Commissioner of Inland Revenue’s affidavit evidence in respect of which there are no obvious explanations, and Ms Sharratt has not sought to explain these.

[15]There is force in both of these competing arguments.

[16]   On their face, both rr 14.2(1)(a) and 15.23 of the High Court Rules apply.  Ms Sharratt is quite correct in submitting that from a substantive point of view the Commissioner of Inland Revenue is the successful party in the litigation. On the other hand, Mr Dewar raises some serious issues concerning the approach taken by the Commissioner of Inland Revenue, to which there has been no response. I reach no views about those allegations. It appears to me that it would be quite unfair to the individuals involved to do so on the basis of untested affidavit evidence in the context of a costs application. By the same token it is troubling that the Commissioner of Inland Revenue has not offered any response.

[17]In the end, the view I take is that substantial justice will be done in this case if

I decline both costs applications and direct that costs are to lie where they have fallen.

Associate Judge Johnston

Solicitors:

Inland Revenue, Wellington for plaintiffs in both proceedings
Thomas Dewar Sziranyi Letts, Lower Hutt for defendants in both proceedings