Commissioner of Inland Revenue v Lau
[2017] NZHC 2013
•23 August 2017
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2016-404-000565
[2017] NZHC 2013
BETWEEN COMMISSIONER OF INLAND REVENUE
Judgment Creditor/Respondent
AND
EE KUOH LAU
Judgment Debtor/Applicant
Hearing: 22 August 2017 Appearances:
E K Lau in person the Judgment Debtor M J Hartfield for the Commissioner
Judgment:
23 August 2017
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
This judgment was delivered by me on
23.08.17 at 10:00am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
COMMISSIONER OF INLAND REVENUE v EE KUOH LAU [2017] NZHC 2013 [23 August 2017]
Introduction
[1] On 31 July 2015 judgment was entered in the District Court in favour of the Commissioner of Inland Revenue against Mr Lau for $2,816,429.47. The judgment sum was not paid. On 24 March 2016 the Court issued a bankruptcy notice against Mr Lau. This was served on Mr Lau on 21 December 2016 in accordance with an order made by the Court on 29 November 2016 dispensing with personal service and permitting service to be effected by email to Mr Lau’s email address, by posting the documents by mail at an address given for Mr Lau and leaving the documents with an adult occupying premises at a physical address given for Mr Lau. The notice has not been complied with.
[2] Mr Lau applies to set the bankruptcy notice aside. In his application Mr Lau raises four issues. First he says that he has four High Court proceedings against four separate persons in which he claims over $8,000,000. None of the defendants is the Commissioner of Inland Revenue, the judgment creditor in this case.
[3] Secondly Mr Lau says that there has not been effective service of documents prior to the bankruptcy notice, by which he must be referring to the District Court proceedings.
[4] Thirdly he says that an officer of the Inland Revenue Department who was auditing his affairs had depression and has not accurately determined the amount owing.
[5] Fourthly Mr Lau says that an error by this officer caused him to sell a residential property at below valuation at a cost to him of some $600,000.
[6] The Commissioner opposes the application. She says that Mr Lau has not pleaded any ground on which the bankruptcy notice could be set aside and that there has not been any challenge to the District Court judgment on which it is based.
[7] Section 17 of the Insolvency Act 2006 provides that a debtor commits an act of bankruptcy if a creditor has obtained a final judgment against the debtor for a sum
of money, execution of that judgment has not been halted by a Court, the debtor has been served with a bankruptcy notice, and the debtor has not within a specified time complied with the requirements of the notice, or satisfied the Court that he or she has a cross-claim against the creditor. A cross-claim is defined to mean a counter-claim, set-off or cross-demand that is equal to or greater than the judgment debt, which the debtor could not use as a defence in the action or proceeding, in which the judgment was obtained.
[8] Rule 24.10 of the High Court Rules provides that once an application to set aside a bankruptcy notice has been filed the time for compliance with the notice is extended until the application to set it aside has been determined, and an act of bankruptcy is not committed by reason only of non-compliance with the notice until then.
[9] Mr Lau sought an adjournment of the case because he has been endeavouring to obtain from the Commissioner of Inland Revenue contact details, a curriculum vitae, and other factual material concerning the case officer whose conduct I have referred to above. The Commissioner has responded in part to requests made under the Official Information Act. Mr Lau maintains that his case should not proceed because he has a significant counterclaim against the Commissioner of Inland Revenue due to the officer’s actions.
[10] At the hearing I declined the adjournment. There is no evidence of any probative value before the Court that Mr Lau has a claim against the Commissioner of Inland Revenue as he states. There is a final judgment of the District Court against Mr Lau which is not under appeal and is binding on him. Mr Lau would have had an opportunity to challenge the Commissioner’s assessment of tax at various stages in the assessment process, and to make a claim against the Commissioner of Inland Revenue at the time that proceedings were brought against him. He did not do so and now seeks to delay the Commissioner’s enforcement of its judgment obtained without opposition over two years ago.
[11] The principles relating to an application to set aside a bankruptcy notice on the basis of a cross claim are set out in Sharma v ANZ Banking Group Limited1 and Robertson v ASB Bank Limited2.
(a)there must be a genuine triable cross claim that exists on the facts as they now stand.3
(b)the test of a genuine triable cross claim is referable to both liability and quantum.
(c)the term cross claim is defined by s 17(7) of the Act and in addition to establishing the cross claim, it must be equal to or greater than the judgment debt and could not have been used as a defence in the proceeding in which that judgment was entered.4
(d)the applicant must show it is just that the cross claim should be determined before the bankruptcy proceedings are allowed to continue; or that the cross claim is proper and reasonable to litigate.5
(e)it is not necessary to go so far as to say that the cross claim is probable, or even likely, to succeed, however, in assessing the strength of a cross claim, the Court need not accept uncritically evidence that is inherently lacking in credibility; for example, where it is inconsistent with contemporary documents or inherently improbable.6
(f)the assessment of the cross claim is limited to whether there is enough evidence to go to trial on; it is not an assessment of the merits of the claim.7
[12] Mr Lau has not demonstrated that he has a genuine triable cross claim against the Commissioner of Inland Revenue for a sum that exceeds the judgment debt on which the Commissioner relies. The only basis upon which Mr Lau alleges that the officer concerned failed her duty is his allegation that she suffered from depression and therefore erred in making the assessment on which the Commissioner relied in obtaining the judgment. There is no evidence that an error was made, let alone that the officer concerned caused it, nor for that matter that she suffered from any form of illness which might have affected her judgment. There is no evidence that the procedure of the Commissioner’s office was in any way unsatisfactory.
1 (1992) 6 PRNZ 386.
2 [2014] NZHC 597.
3 Robertson at 27.4 Robertson at 22.
5 Robertson at 23.
6 Robertson at 31 and 32.7 Robertson at 59.
[13] I find that Mr Lau does not have a cross claim against the Commissioner of Inland Revenue in terms of Section 17.
[14] The claims that Mr Lau has brought in this Court against four other named parties, together with a further claim he says he is bringing against the Auckland Council, are not cross claims against the Commissioner of Inland Revenue and are also outside the terms of Section 17.
[15] The Commissioner also refers to Rule 5.61 of the High Court Rules which provides that in a proceeding by the Crown for the recovery of taxes, duties or penalties a defendant is not entitled to advance any set off or counterclaim. Further, in a proceeding of any nature by the Crown a defendant is not entitled to advance any set off or counterclaim arising out of a right or claim to payment in respect of any taxes, duties or penalties.
[16] In Alp v Commissioner of Inland Revenue8 the Court considered this issue in similar circumstances to the present and held:
Leaving aside, for the moment, Mr Alp’s contention that he has a valid defence outside of the disputes procedures (which does not seem tenable having regard to the terms of s 109), this ground [that there was a genuinely triable counterclaim or set-off] for setting aside cannot succeed having regard to r 5.61(1) and (2) of the High Court Rules.
[17] It follows that Mr Lau could not in any event raise the claim he says he has in respect of the conduct of an officer of the Commissioner as a counterclaim or cross claim in this case.
[18] Finally, the judgment of the District Court is final. Any issues in relation to service in that Court would, if formally raised by way of an application to set aside the judgment, be for that Court to decide. That has not occurred.
[19] For these reasons the application to set aside the bankruptcy notice is dismissed.
8 (2011) 25 NZTC 20-060.
[20] Mr Lau will pay costs to the Commissioner on a 2B basis plus disbursements fixed by the Registrar.
Associate Judge Matthews
0
0
1