Commissioner of Inland Revenue v Boylan

[2015] NZHC 2773

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001417 [2015] NZHC 2773

IN THE MATTER OF

The Insolvency Act 2006

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

AND

PETER JAMES BOYLAN Judgment Debtor

Hearing:	4 November 2015
Appearances:	M Hartfield for Judgment Creditor P J Davey for Judgment Debtor
Judgment:	9 November 2015

JUDGMENT OF VENNING J

This judgment was delivered by me on 9 November 2015 at 2.15 pm, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Inland Revenue, Legal and Technical Services, Auckland

Steindle Williams Legal Ltd, Auckland

Copy to:            P Davey, Auckland

THE COMMISSIONER OF INLAND REVENUE v BOYLAN [2015] NZHC 2773 [9 November 2015]

Introduction

[1]      Mr Boylan has failed to meet his obligations to the Inland Revenue.   The Commissioner seeks to have Mr Boylan adjudicated bankrupt having obtained judgment in the District Court.  Mr Boylan asks the Court to exercise its discretion and not adjudicate him bankrupt.  He wishes to have time to resolve issues with the Commissioner.

[2]      Mr Boylan also challenges the validity of the bankruptcy notice upon which the petition is based.  The bankruptcy notice served on him had been extended by the Court on  two  occasions.    He says  the bankruptcy notice should  not  have been extended on the second occasion.

[3]      I deal first with the application to review Associate Judge Bell’s decision to extend the time for service of the bankruptcy notice.  If Mr Boylan’s review of that decision is successful then the petition must be dismissed.

Background

[4]      The chronology is important. As material it is as follows:

16 June 2014

Bankruptcy notice issued

4 December 2015

Extension of time sought for service of the bankruptcy notice

December 2014

Extension granted

16 December 2014

Expiry of the six months from the date of issue of the bankruptcy notice

3 March 2015

Application for substituted service filed

6 March 2015

Order  made  by  Associate  Judge  Bell   granting  the application for substituted service

Order made by Associate Judge Bell extending the time for service of the bankruptcy notice

16 March 2015

Three month period from the issue of the first extension expires

30 March 2015	Bankruptcy notice served by way of substituted service in compliance with the order for substituted service
15 April 2015	Act of bankruptcy
10 June 2015	Creditor’s application filed

[5]      While there was an application for substituted service before Associate Judge Bell on 6 March 2015 there was no formal application before him for extension of time. The Judge dealt with the matter on his own initiative as follows:

[1]       The bankruptcy notice was issued on 16 June 2014. The creditor did not serve the bankruptcy notice within six months of issue.  The bankruptcy notice was renewed for a further three months with effect from 16 December

2014. That period is about to expire.

[2]       I extend the period for service of the bankruptcy notice for a further

three months from 16 March 2015.

Jurisdiction to extend the period for service of the bankruptcy notice

[6]      Mr Davey was initially prepared to concede on Mr Boylan’s behalf that, based on the authority of Re Ryal Bush Transport Ltd, ex parte Allfrey1 it was open to the Court to extend the time for serving a bankruptcy notice beyond the period allowed in the rules.  He focused his submissions on the proposition that the Judge was wrong to extend the bankruptcy notice in the way he did.  In other words, the challenge was as to the exercise of the discretionary decision to extend time.

[7]      I am not at all sure the concession was well made and consider that it is at least necessary to consider the issue of jurisdiction.

[8]      The  wording  of  the  relevant  High  Court  Rule  is  important.    Rule  24.9 provides as follows:

24.9     Service of bankruptcy notice in New Zealand

(1)      A bankruptcy notice that is to be served in New Zealand must be served within 6 months from the date of its issue.

1      Re Ryal Bush Transport Ltd, ex parte Allfrey [2012] NZHC 3454.

(2)       The creditor may before or after the expiry of the period referred to in subclause (1) apply to the court for an order extending the period of service.

(3)       The court may extend the period for service for a further 3 months from the expiry of the period referred to in subclause (1) if the court is satisfied that—

(a)       reasonable efforts have been made to effect service;

or

(b)      for any other good reason an extension of the period for service is desirable.

(4)      A bankruptcy notice must be served in accordance with Part

6 (service).

[9]      The scheme of the rule is that a bankruptcy notice must be served within six months from issue but the Court may extend the period for service for a further three months from the expiry period of that six month period if satisfied that reasonable efforts have been made to effect service or there is other good reason to extend that makes an extension of the period for service desirable.   There is no provision to extend the period for service of the bankruptcy notice beyond nine months in total.

[10]     The current wording of the rule can be contrasted with the former rule which was considered by Associate Judge Osborne in the Re Ryal Bush Transport Ltd, ex parte Allfrey case.2  At that time r 24.9 provided:

24.9     Service of bankruptcy notice in New Zealand

(1)       A bankruptcy notice that is to be served in New Zealand must be served within 1 month from the date of its issue.

(2)       If, however, the Registrar is satisfied that reasonable efforts have been made to comply with subclause (1) and service has not been effected, the Registrar,—

(a)       on the request in writing of the judgment creditor made not later than 1 month after the end of that period, may extend the time by 1 month or by successive periods of 1 month:

(b)      must mark the notice with the word “renewed” and the date

of the renewal.

(3)       A notice must not, without a Judge's consent, be extended for a period exceeding 3 months from the date on which the notice was first issued.

2      Re Ryal Bush Transport Ltd, ex parte Allfrey, above n 1.

[11]     The former r 24.9 therefore provided for the period of service to be extended from time to time, with the only restriction being that any extension past three months had to be at the discretion of a Judge.

[12]     In the Re Ryal Bush Transport Ltd, ex parte Allfrey Associate Judge Osborne concluded that when r 24.9 was read with r 1.19 of the High Court Rules it was open to   him   to   extend   the   time   for   requesting   the   extension   under   r   24.9(2) notwithstanding the bankruptcy notice may have previously expired.   It may have been unnecessary to invoke r 1.19.  At the time r 24.9(2)(a) expressly provided an extension could be made on a request made not later than one month after the expiry of the relevant period.  Given the request under r 24.9(3) was a day out of time and reasonable efforts had been made to attempt to serve the judgment debtor, he considered reasonable grounds existed for an extension of time.   He granted the extension accordingly.  The bankruptcy notice in that case was originally issued on

13 September 2012.  The effect of the extension granted was to extend the period for service to 14 January 2013, (a total of some four months).

[13]     The  minutes  of  the  Rules  Committee  of  15  April  2013  explain  the background to the change in the rules as follows:

The Chair began by outlining Associate Judge Bell’s suggestion that the period for service of bankruptcy notices be extended from one month to six months.   Currently, a person has one month to serve a bankruptcy notice after it has been issued.  Prior to the one month period expiring the person has to apply to have the bankruptcy notice renewed.  The Chair explained that Associate Judge Bell is concerned that this process creates unnecessary work for parties, lawyers, Registry staff and even Judges.  The Chair then explained that the Official Assignee was approached and had no reservations about extending the notice period and also that overseas jurisdictions had adopted a longer period (Victoria, 6 months) or had changed to a statutory demand (United Kingdom).

[14]     Then at the following meeting on 10 June 2013 it was recorded:

Judge Doherty wondered whether there was any reason behind the specific periods for service or whether they were arbitrary.  Justice Asher explained that the stated periods were pragmatic choices and so necessarily arbitrary. The Committee agreed to the extension of the periods of service.

[15]     The explanatory note to the amendment records:

[r]ule 25 amends r 24.9 of the principal rules to extend the period of service for bankruptcy notices from 1 month to 6 months, to provide criteria to guide decisions about the further extension of that period, and to provide that bankruptcy notices are to be served in accordance with Part 6 of the principal rules.

[16]     Rule 24.9 is now in quite different terms to the former rule.  It provides for an initial extended period of six months for service of the bankruptcy notice.

[17]     While r 24.9(3) provides for an extension of the six month period for a further three month period it does not provide for repeated extensions as the former rule did.  The issue then is whether there is statutory or other power to extend the time for service.

Statutory power to extend the time for service?

[18]     Section 417 of the Insolvency Act 2006 provides a general power to extend time limits:

417      Court may extend time

(1)      The court may extend any time limit imposed by this Act, or by rules or regulations made under this Act, for doing any act or thing.

(2)       The court may extend the time limit—

(a)      before or after the time limit has expired: (b)        on the conditions it thinks appropriate.

[19]     However, I also note s 442 of the Insolvency Act provides for the making of rules under the Judicature Act 1908 relating to the procedure of the Court under the Insolvency Act and to give effect to the Insolvency Act.  Clearly r 24.9 is such a rule. I do not accept, however, that the general power of extension of time in s 417 operates to trump the specific provisions for service of a bankruptcy notice under r 24.9.

[20]     Mr Hartfield submitted that the time for service of the bankruptcy notice could have been extended in terms of r 1.19 of the High Court Rules:

1.19     Extending and shortening time

(1)       The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just.

(2)      The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.

[21]     Rule 1.19 is a general rule that is not within Part 24 of the High Court Rules, which relates specifically to insolvency.  If r 1.19 is to apply to r 24.9 as submitted then it would undermine the effect of the requirement that a bankruptcy notice be served within a specific period of time, namely six months or, if extended, within a further three months (in total nine months).  The nature of insolvency proceedings is relevant.  They are different and distinct to other civil proceedings provided for by the High Court Rules.  That is recognised in the “old law” which was referred by Associate Judge Osborne in the Re Ryal Bush Transport Ltd, ex parte Allfrey case.

[22]     Under the “old law” once the period for any application for renewal had expired the bankruptcy notice was defunct and could not be validated retroactively: Re McPhail ex parte Holt.3 There are sound policy reasons for that. Herdman ACJ observed at p 428:

In considering such a case as the present one it is necessary to ascertain whether all the formalities have been strictly complied with.  In Re Collier [8

Morr 80] Cave J, said that “since the commission of an act of bankruptcy

was a serious matter and involved consequences of what has been called a penal nature, it was important to see that the necessary preliminaries were

complied with”.

[23]     Also, in Re Rowles, Master Towle refused to validate service effected without obtaining the required prior leave saying:4

I believe the act of bankruptcy is a statutory creation and if a petitioning creditor has not complied with the requirements of the Act then it is not a situation which would lend itself appropriately to validation by a retroactive order.

3      Re McPhail ex parte Holt [1929] NZLR 426.

4      Re Rowles HC Auckland B1463/90, 3 December 1990.

[24]     In Re Ball, ex parte Snowden Tipping J declined to read r 6 (now r 1.19) as giving a general power to extend time limits in relation to the time for filing a petition under the predecessor to s 13(b) of the Insolvency Act 2006.5     Justice Tipping stated that the rule could not assist in circumstances where there was a more direct statutory period of three months in the section.6

[25]     There may be a good argument that r 1.19 does not apply to r 24.9 as it is

inconsistent with r 24.9 itself, and with the general policy of the “old law”.  Rule

24.3 provides the other parts of the rules apply to Part 6 unless inconsistent with Part

24.  I note that Part 24 has been enacted under the power conferred by s 442 of the Insolvency Act.   It may be the case that r 1.19 cannot be invoked to extend the limitation:    Russell v Attorney-General; and Johnsonville Licensing Trust v Johnsonville Gospel Hall Trust Board.7    However, as I did not have complete argument on the point I leave it open.  I do not consider that r 1.19 assists in any event.  Even if r 1.19 applied, it required an application to extend or shorten time.  In

the present case no application was made.  The Judge purported to extend the time on his own initiative.

Inherent jurisdiction to extend the time for service?

[26]     That leaves Mr Hartfield’s argument that it was open to the Court to exercise its  inherent  jurisdiction  to  extend  time.    Mr  Hartfield  submitted,  principally  in reliance on Stylo Medical Services Ltd v Hum Hospitality Ltd,8 that the Court could exercise its inherent jurisdiction to extend time.  The purpose of the Court’s inherent jurisdiction is to enable it to control its own processes so as to do justice between the parties, to prevent the  abuse of process or injustice which may arise from that process.  I observe at this stage that it is unlikely to be an injustice if the Court was to decline to extend a bankruptcy notice beyond nine months from its issue in the

circumstances of this particular case, a matter to which I shall return.

5      Re Ball, ex parte Snowden (1991) 4 PRNZ 358 (HC).

6      At 4.

7      Russell  v  Attorney-General  [1995] 1 NZLR 749; and Johnsonville  Licensing  Trust  v

Johnsonville Gospel Hall Trust Board [1972] NZLR 655.

8      Stylo Medical Services Ltd v Hum Hospitality Ltd [2014] NZHC 2723.

[27]     While accepting the general principle as to the availability of the Court’s inherent jurisdiction, as the Supreme Court made clear in Zaoui v Attorney-General9 both the substantive and procedural inherent jurisdiction can be displaced by legislation. The point was repeated in the recent Court of Appeal case B v C:10

[48]      The inherent jurisdiction of the High Court can only be exercised in circumstances that fall within its proper scope and when it does not conflict with legislative provisions: generally, see Taylor v Attorney-General [1975]

2 NZLR 675 (CA), Donselaar  v  Mosen  [1976]  2  NZLR  191  (CA),

Champtaloup v Northern Districts Aero Club Inc [1980] 1 NZLR 673 (SC

and CA), and Zaoui v Attorney-General at [35] and [36].

[28]     The judgment creditor is unable to rely on the inherent jurisdiction in the present case where there is a specific rule providing for the time within which a bankruptcy notice must be served.  If r 24.9 is to be interpreted so as to preclude an extension past nine months for service of a bankruptcy notice, then to allow the inherent jurisdiction to be applied in that case would be to undermine the rule.  The case of Stylo Medical Services Ltd relied on Mr Hartfield is a quite different case.  It involved the need for the Court to retain a broad jurisdiction to modify an order the Court had itself made.

[29]     Mr Hartfield then submitted that if the extension was made in breach of r 24.9, then r 1.5(2) applied.  It provides the Court has a wide discretion to deal with the matter as an irregularity and to make any order as it thought just.  For the reasons given above and the reasons to which I am about to turn on the issue of discretion I do not consider that r 1.5 (if it is applicable given the above reasoning) assists the judgment creditor in this case.   As Mr Davey submitted, r 1.5(2) provides for a discretion.   The Court may set aside, either wholly or in part, the proceeding in which the failure occurred, or any other step taken in the proceeding in which the failure occurred.

Discretion

[30]     Even if, contrary to my tentative view expressed above, there was jurisdiction for the Judge to make an order extending the time for service I am satisfied that the

9      Zaoui v Attorney-General [2005] 1 NZLR 577, at [35]–[36].

10     B v C [2008] NZCA 198.

order should not have been made in this case.  While I accept the decision to extend time under r 24.9 is a discretionary one, no reasons were given for the exercise of the discretion in this case so it is necessary to consider it afresh.

[31]     As noted, there was no application before the Court.  While I understand that from a pragmatic point of view the Judge would have been aware the extended period of three months was soon to expire, the order for substituted service could have been made and the proceedings served by way of substituted service prior to the expiry of the extended three month period without the need to extend the period for service further.

[32]     Next,  r  24.9  itself  directs  that  consideration  is  to  be  give  to  whether reasonable efforts have been made to effect service or if there is any other good reason an extension for a period of service is desirable.  The delay in applying for any extension may also be relevant.

[33]     In the present case the evidence discloses there were various attempts made to serve the judgment debtor but by at least 13 November 2014 the judgment creditor was aware from its process server’s report of the difficulties in serving the judgment debtor (the last attempt was on 22 October).  There is no evidence why, upon receipt of the report from Baycorp on 13 November 2014 (before the expiry of the first period of six months), the judgment creditor took no steps to apply for substituted service before the first period of six months expired on 16 December 2014.  Nor is there any evidence why an application for substituted service was not made with the first  application  to  extend  time  for  service  filed  on  4  December  2015.    The application for substituted service was not made until 12 February 2015, some three months after the report.  The judgment creditor could and should have applied to the Court well before that date.   In the absence of any explanation for this delay the Court should not have exercised its discretion to extend the bankruptcy notice.

[34]     It is accepted by the judgment debtor that a further bankruptcy notice can issue.  The only prejudice to the judgment creditor is the additional cost of such an exercise and further delay.  There is no undue prejudice to the judgment creditor, a department of Government, in incurring such cost.   It has, for whatever reason,

already  considerably  delayed  in  taking  the  appropriate  steps  in  the  current proceeding.

[35]     For those reasons, even if jurisdiction existed to extend time, I would have granted the review and reviewed the decision.

Conclusion

[36]     For those reasons the application to review is granted.  The time for service of the bankruptcy notice should not have been extended past the nine months available to the judgment creditor.  The bankruptcy notice served on the judgment debtor was therefore stale and a nullity.  The petition based on the act of bankruptcy following service is itself a nullity.  The bankruptcy notice is set aside.  The petition is dismissed.

[37]     At  the  conclusion  of  the  hearing  the  petition  was  adjourned  for  call  at

10.00 am on 14 December 2015. That call is vacated.

Costs

[38]     Prima facie costs should follow the event on a 2B basis.   If counsel are unable to agree on costs I will receive memoranda.

Venning J