Commissioner of Inland Revenue v Mills

[2016] NZHC 1189

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-03113 [2016] NZHC 1189

IN THE MATTER

of the Insolvency Act 2006

AND

IN THE MATTER

of the bankruptcy of Peter James Boylan

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor/Respondent

AND

MARK RAYMOND MILLS Judgment Debtor/Applicant

Hearing:	2 June 2016
Appearances:	M Hartfield for Judgment Creditor S Kilian for Judgment Debtor
Judgment:	2 June 2016

COSTS JUDGMENT OF VENNING J

Solicitors:           Inland Revenue, Legal and Technical Services Auckland

Kilian & Associates, Auckland

THE COMMISSIONER OF INLAND REVENUE v MILLS [2016] NZHC 1189 [2 June 2016]

[1]      The Commissioner of Inland Revenue sought an order adjudicating Mr Mills bankrupt.  The application was based on a judgment obtained in the District Court for in excess of $108,000.  Mr Mills opposed the application for adjudication.  He took a number of steps including an application to set aside the bankruptcy notice. That was withdrawn.

[2]      During the course of a defended  application to adjudicate him bankrupt, which was being heard before Associate Judge Sargisson, the parties reached an agreement to resolve all issues.  Under the agreement and taking account of previous payments Mr Mills paid the balance remaining owing to the Commissioner of Inland Revenue of $25,225.70. All that remains is the issue of costs.

[3]      The application was listed for hearing in today’s list.  I note that costs can be dealt with by another Judge if it is not convenient for the original Judge who dealt with the matter to determine costs:  r 14.9.  It is convenient for the Court to deal with costs today as counsel are before it.

[4]      The Commissioner seeks costs on a 2B basis which she calculates at $4,216, including disbursements of $888.  Mr Mills opposes any award of costs.  Through counsel he argues that the Commissioner has not taken a balanced approach in attempting to resolve the matter, noting substantial payments were made throughout the process.   He was able to pay the full debt within a short period of time.  The Commissioner was always aware that Mr Mills would pay the debts and was seeking to settle the matter and the use of the bankruptcy provisions as a method to collect the debts was improper in the circumstances.   Mr Kilian submits that had the Commissioner acted in a reasonable manner the issue could have been resolved rather than through these proceedings.

[5]      Finally, and in the alternative, issue is taken with the costs being sought on a

2B basis when in-house counsel has represented the Commissioner throughout.

[6]      Essentially Mr Mills says the Commissioner should not have pursued the bankruptcy proceedings against him and acted unreasonably in doing so.   The background to the proceeding is relevant and has been covered in the materials provided to the Court.   It is important to note that the debt arose from GST from September 2009 and from three income tax periods ending March 2009, the most substantial of which was the March 2008 year.  Unfortunately for Mr Mills he was not assisted by discrepancies in the returns filed on his behalf by his accountant.  As a result the judgment debt appears to have overstated Mr Mills’ obligations to the Commissioner.

[7]      There is a substantial amount of reference in counsel’s submissions to the meetings and proposals that were being put to have matters resolved but the starting point is that Mr Mills owed tax and was subject to a judgment in the District Court. He had not settled his liability to the Commissioner before these proceedings were issued.  While the judgment did overstate Mr Mills’ obligations to the Commissioner that was through no fault of the Commissioner’s record keeping, but rather arose it appears through Mr Mills’ accountants’ actions.

[8]      In any event in an affidavit dated 17 September 2015 the Commissioner of Inland Revenue’s officer confirmed the adjusted tax then due after taking account of the payments Mr Mills had made to that date and also the adjustments conceded by the Commissioner.

[9]      Despite that the judgment debtor continued to oppose the application for bankruptcy and only ultimately agreed to pay that amount which was properly due during the course of the hearing on 24 November 2015.

[10]     I accept the submissions for the Commissioner by Mr Hartfield that it was not unreasonable for the Commissioner of Inland Revenue to pursue these proceedings because  the  judgment  sum  remained  unsatisfied.   The  judgment  debtor  did  not comply with the bankruptcy notice and even when the adjusted sums were confirmed to  the  judgment  debtor  Mr Mills  he  still continued  to  pursue his  opposition  to bankruptcy rather than pay.

[11]     The Commissioner’s decision to pursue the application was open to her and ultimately led to the recovery of the debt.

[12]     It cannot be said, as Mr Mills argues, that it would have been paid in the ordinary way if he had not been placed under the pressure of the proceeding.  I see nothing in the actions of the judgment creditor, Commissioner, that would disallow or reduce the costs otherwise properly due to her as the affected successful party.

[13]     In the alternative Mr Kilian has argued that costs should not be awarded because of r 14.2(f) which prevents a party, in this case the Commissioner, from profiting from a costs award.  Rule 14.2(f) provides:

The following general principles apply to the determination of costs:

…

(f)       an award of costs should not exceed the costs incurred by the party claiming costs: ..

[14]     The  issue arises  because counsel  representing the  Commissioner  was  in- house counsel. That does not prevent recovery.  The principles underlying the rule have been applied in a number of cases.  In Henderson Borough Council v Auckland Regional Authority Cooke J noted:1

[t]he fact that an employed practitioner has acted for the successful party is not a sufficient reason for denying that party an award of party and party costs: after all, the time of a salaried employee has been occupied.

[15]     That observation was of course before the new costs regime.   There have been cases decided under the rules however which employ the principle.  I refer to the cases provided by Mr Hartfield of Inland Revenue v Harbour City Tow and Salvage (2003) Limited and Grant v Pandey.2

[16]     Essentially the costs regime under the High Court Rules proceeds on the basis that an award of costs should not exceed the actual costs incurred by the party

1      Henderson Borough Council v Auckland Regional Authority [1984] 1 NZLR 16 (CA), at 23.

2      Inland Revenue v Harbour City Tow and Salvage (2003) Limited HC Wellington CIV-2006-485-

2002, 12 February 2007 and Grant v Pandey [2013] NZHC 3323.

claiming costs but there is a deeming nature of the costs regime as observed by this

Court in NZ Properties Holding (in liq) v CP Asset Management Ltd.3

[17]     I also note in particular the observations of Judge Gendall in the case of

Inland Revenue v Harbour City Tow and Salvage:4

[27]      She also confirms in this submission that there is no “charge out rate” applied to the work of counsel for the Commissioner, which reflects the general nature of in-house counsel work. Salaries of course are paid to in- house practitioners to avoid paying out-sourced legal fees.

[28]      As   I  have   mentioned   above,   the   costs   here   sought   by   the Commissioner calculated upon a category 2B basis total $4,330 plus disbursements. The plaintiff notes that this figure has been arrived at following the “deemed” costs formula contained in the Schedules to the High Court Rules as dictated by r 47(c). As Glaister notes, these “deemed” rates for costs have been established by the High Court Rules Committee nationally after appropriate consultation.

[29]      In the present case, the plaintiff seeks to rely upon the costs deemed to be reasonable in terms of the High Court Rules, and submits that it should be allowed to do so. The plaintiff has confirmed that its time involved in working on this proceeding is nearly 45 hours, much of which appears to have   involved   the   plaintiff’s   necessary   response   to   the   defendant’s application  to  stay  the  proceeding  and  restrain  advertising. This  time  is substantial. On a normal counsel charge-out rate, even at the most basic level, the costs involved here would have well exceeded the costs sought of

$4,330.

[18]     In the present circumstances there is no information before the Court as to the time involved by in-house counsel on this file.  Subject only to clarification of that issue the costs sought are appropriate (subject to one minor variation or adjustment).

[19]     The Commissioner is to have costs on a 2B basis in accordance with the memorandum submitted by counsel for the judgment creditor with the adjustments that the amount claimed for the sealing of the order and the disbursement associated with that are deducted so that the amount of costs, including disbursements, is fixed at $3,720.  I make no order for the appearances today in relation to the issue of costs.

[20]     That order is to lie in Court pending a memorandum from counsel for the

Commissioner confirming, in accordance with the discussion in the Harbour City

3      NZ Properties Holding (in liq) v CP Asset Management Ltd [2013] NZHC 3341.

4      Inland Revenue v Harbour City Tow and Salvage (2003) Limited, above n 2 at [27]–[29].

Tow and Salvage case, that the time involved and steps taken by in-house counsel is such that the costs to the Commissioner are more than the sum referred to.

[21]     In the event that the memorandum discloses that the costs incurred by the

Commissioner are in fact less than the sum referred to then the costs order will be adjusted to that lesser sum and the order can be sealed in that lesser sum.

Venning J