Commissioner of Inland Revenue v Muir
[2018] NZHC 1407
•15 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHECIV 2017-404-002465
[2018] NZHC 1407
BETWEEN COMMISSIONER OF INLAND REVENUE
Judgment Creditor
AND
GARY ALBERT MUIR
Judgment Debtor
Hearing: 28 May 2018 Appearances:
S J Leslie for Judgment Creditor R B Hucker for Judgment Debtor
Judgment:
15 June 2016
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by me on
15.06.18 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Crown Law Office, Wellington Hucker & Associates, Auckland
COMMISSIONER OF INLAND REVENUE v G A MUIR [2018] NZHC 1407 [15 June 2016]
Introduction
[1] The judgment debtor, Dr Gary Muir, was the architect of the Trinity Tax Scheme. In a test case before the Supreme Court in 2008, it was held that the scheme was a tax avoidance arrangement.1 Since then, there has been a long history of unsuccessful legal challenges by Dr Muir to the assessment of his tax liability by the Commissioner of Inland Revenue.
[2] The total number of challenges, both direct and collateral, is significant. What is now at issue is whether Dr Muir has exhausted all relevant and credible challenges. This includes two outstanding appeals to the Court of Appeal against determinations of this Court that amended pleadings brought by Dr Muir were a flawed attempt to re-enliven struck out challenges.
[3] In a summary judgment decision of this Court, recently upheld on appeal, judgment was entered against Dr Muir in favour of the Commissioner for unpaid taxes, interest and penalties totalling $8,179,830.94.2
[4] The Commissioner, now the judgment creditor, has issued a bankruptcy notice against Dr Muir on the basis of the summary judgment. In this proceeding, Dr Muir seeks to have the Court exercise its inherent jurisdiction to set aside the bankruptcy notice on two related grounds:
(a)The notice is based on a judgment, namely the summary judgment of 23 June 2017, which the Court did not have jurisdiction to enter given the provisions of s 138I of the Tax Administration Act 1994. The summary judgment is currently the subject of an application for leave to appeal to the Supreme Court;
(b)There remain outstanding tax challenges which are the subject of proceedings under pt 8A of the Tax Administration Act 1994. The
1 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 at [148].
2 Commissioner of Inland Revenue v Muir [2017] NZHC 1413 upheld on appeal,
Muir v Commissioner of Inland Revenue [2018] NZCA 129.
amounts thus claimed by the Commissioner are uncoverable until 30 days after determination of the amounts determined by a hearing authority as being properly payable. These challenges are currently before the Court of Appeal.
[5] Dr Muir says that there are real concerns about the safety of the underlying summary judgment. The best way to address the concerns is for this Court to adjourn these proceedings pending the application for leave to appeal to the Supreme Court against summary judgment.
[6] The Commissioner opposes the application to set aside the notice and to grant any adjournment. She says that she is entitled to rely on the summary judgment, when execution has not been stayed, that this Court had jurisdiction to enter summary judgment (confirmed on appeal to the Court of Appeal) and that there are no outstanding tax challenges under pt 8A. She says it would be an abuse of process to set aside the notice or to grant an adjournment in circumstances where the judgment debt has not been stayed and remains outstanding and where purported fresh challenges on matters giving rise to the debt at issue have already been finally determined.
[7] The Commissioner does not contest the inherent jurisdiction. The critical issue for determination is whether in the exercise of that jurisdiction I should adjourn the proceedings, pending the determination of the application for leave to appeal to the Supreme Court. That is the principal order sought by Dr Muir.
Relevant legal principles
[8] Section 17(1) of the Insolvency Act 2006 (the 2006 Act) provides that a debtor commits an act of bankruptcy where he or she fails to comply with the requirements of a bankruptcy notice served on him or her by a creditor within 10 working days.
[9] There is no failure to comply with a bankruptcy notice under s 17 if the debtor satisfies the Court within time that he or she has a cross claim against the creditor. Cross claim is defined in s 17(7) to mean a counterclaim, set-off, or cross demand
which the debtor could not use as a defence in the action or proceedings in which the judgment was obtained.
[10] Rule 24.10 of the High Court Rules 2016 extends the time for compliance with the bankruptcy notice until any application seeking to set aside the bankruptcy notice has been determined and only where a valid application has been made. An order setting aside a bankruptcy notice may be granted in accordance with the High Court’s inherent jurisdiction.
[11] In Re Wise, ex parte Benecke3 it was held that s 19(1)(d) of the Insolvency Act 1967 (the predecessor to s 17 of the 2006 Act) is not a bar to the exercise of the Court’s inherent jurisdiction to control the abuse of its process by setting aside a bankruptcy notice on grounds other than the existence of a counterclaim, set-off or cross demand. The grounds on which the jurisdiction may be exercised are procedural defects in the obtaining of the judgment on which the bankruptcy notice is based, or the existence of arguable grounds of defence to the claim for which judgment was given. A third possible ground is where it is necessary to prevent injustice.
[12] In Holmes Construction Ltd v Rees4 it was held, that the correct approach, if the inherent jurisdiction of the Court is to be invoked, is to do what Master Kennedy- Grant did in Re Wise, ex parte Benecke and adjourn the application to set aside to check progress with the hearing of the relevant appeals and on the condition that the debtor takes practical steps to prosecute those appeals diligently.
[13] In Re Krukziener, ex parte Hanover Finance Ltd5 Associate Judge Abbott referred to the decision in Re Wise in the following way:
The first two circumstances identified by Master Kennedy-Grant in Re Wise call into question the judgment itself. A procedural defect suggests an element of unfairness in letting the judgment stand. The “arguable grounds of defence” suggests a substantive reason for questioning the soundness of the judgment (hence the case law built up around stay pending an appeal, but perhaps also a defence that had not been identified at the time of the underlying judgment or which has emerged since). In all of these cases, there is an issue as to the
3 Re Wise, ex parte Benecke HC Auckland, B 227-228/95, 21 June 1995.
4 Holmes Construction Ltd v Rees HC Auckland, CIV-2006-404-004219, 9 February 2007 at [34].
5 Re Krukziener, ex parte Hanover Finance Ltd HC Auckland, CIV-2007-404-002896, 12 August 2008 at [29].
safety of the underlying judgment. The Court will intervene in those cases on the grounds that it would be an abuse to allow a bankruptcy proceeding to be pursued if there is good reason to doubt the judgment on which it is based. There is no suggestion in the present case of a procedural defect, a legitimate defence being overlooked, or (now that the appeal has been determined) that there was any error in the judgment.
(emphasis added)
[14] Associate Judge Abbott held that a debtor who cannot rely on the specific grounds under s 19(1)(d) (now s 17(1)(d)(ii)), but seeks to have the Court exercise its inherent jurisdiction to set aside a notice on the grounds of potential injustice (but not impugning the underlying judgment debt) must show very special circumstances.
[15] Res judicata and issue estoppel can arise in the context of an application to set aside a bankruptcy notice, where the claims relied upon by the debtor in the bankruptcy proceedings are essentially the same as the claims that were rejected by the Court in the proceeding on which the bankruptcy notice was based.6 The abuse of process ground for the exercise of the inherent jurisdiction is thus unlikely to be available to a debtor whose real argument is over a claim which could have been brought before the Court which entered the judgment relied upon by the creditor. Because the Act provides the express ground for setting aside a bankruptcy notice, the concept of resorting to the inherent jurisdiction is contradicted.7
Background
[16] The Court of Appeal in Muir v Commissioner of Inland Revenue8, a very recent decision of 30 April 2018, held that there have been many stages to the Trinity Scheme litigation. I adopt in its entirety, the Court of Appeal’s analysis of the key stages of that litigation at paras [6] to [20].
[17]It is necessary to further update the chronology as follows.
6 Re Hampton, ex parte Minter Ellison Rudd Watts [2012] NZHC 1715 and Māori Trustee v Hill
[2017] NZHC 2377 at [17].
7 Re Saker ex parte Blackler HC Wellington, CIV-2008-485-000124, 26 May 2008 at [26]; see also
Minter Ellison Rudd Watts v Hampton [2012] NZHC 1715 at [60].
8 Muir v Commissioner of Inland Revenue [2018] NZCA 129.
[18] By application dated 21 May 2018, Dr Muir has sought leave from the Supreme Court to appeal the Court of Appeal decision upholding the summary judgment determination of Associate Judge Bell. The grounds of appeal include the issue of whether Associate Judge Bell had jurisdiction to determine whether tax challenges were finally determined. The application for leave remains outstanding but is likely to be determined within six to eight weeks.
[19] As noted at para [20] of the judgment of the Court of Appeal in Muir v Commissioner of Inland Revenue9, Dr Muir has appealed from the recent decisions of Toogood and Jagose JJ. Both appeals (CA 549/17 and CA 16/18) were heard together, by the Court of Appeal on 31 May 2018. Judgment is still reserved. It is those two Court of Appeal decisions that Dr Muir says are outstanding tax challenges under pt 8A of the Tax Administration Act 1994.
[20] Dr Muir has also sought to recall the Court of Appeal decision Muir v Commissioner of Inland Revenue Department10 (CA 395/17). In a minute dated 12 June 2018 the Court of Appeal has dismissed the application for recall.
[21] For the purposes of my analysis, this very lengthy litigation history can be categorised into four relevant stages: –
(a)Litigation resulting in the Supreme Court decision Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue11 determining that the Trinity Scheme was a tax avoidance arrangement;
(b)Subsequent attempts by Dr Muir to challenge his personal tax assessments including collateral litigation. There were numerous findings of abuse of process against Dr Muir, the company Redcliffe Forestry Ventures Limited and others. Indemnity costs were made against Dr Muir personally on five occasions,12 against Redcliffe on a
9 Muir v Commissioner of Inland Revenue, above n 8, at [20].
10 Above n 8.
11 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 1.
12 Commissioner of Inland Revenue v Accent Management Ltd [2012] NZHC 2389; Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155, [2013] 3 NZLR 374; Muir v Commissioner of Inland Revenue [2015] NZHC 2855; Muir v Commissioner of Inland
further three occasions,13 and against companies for whom he appeared as counsel on a further four occasions;14
(c)The enforcement proceedings, being the summary judgment determination of Associate Judge Bell, upheld on appeal to the Court of Appeal; and
(d)These current bankruptcy proceedings.
The case for Dr Muir
[22] Mr Hucker for Dr Muir emphasised that there are real concerns with the safety of the underlying summary judgment. He contended that Associate Judge Bell did not have jurisdiction to enter summary judgment. The judgment could only have been entered in the event that all tax challenges had been finally determined under pt 8A of the Tax Administration Act 1994. Because there has been no determination of the outstanding tax challenges under pt 8A (which only a hearing authority can determine), there was no debt due to the Commissioner as no tax had become payable.
[23] As a result, there are no monies owing by Dr Muir as the judgment debtor. Any tax due under an assessment is not due for payment until 30 days after the day of determination of the final liability. That is the date that all appeals from a properly brought tax challenge have been determined.
[24] Mr Hucker contended that there is a realistic prospect that the summary judgment will have to be set aside because of the outcome of the current application for leave to appeal to the Supreme Court and the outcome of the hearing before the
Revenue [2015] NZCA 591, (2015) 27 NZTC 22-034; Muir v Commissioner of Inland Revenue
[2016] NZCA 579.
13 Accent Management Ltd v Commissioner of Inland Revenue (2011) 25 NZTC 20, 022; Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 3468; Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2014] NZCA 349.
14 Accent Management Ltd v Attorney General [2013] NZHC 1447, (2013) 26 NZTC 21-020; Accent Management Ltd v Attorney General [2014] NZCA 351, (2014) 26 NZTC 21-087; Bradbury v Commissioner of Inland Revenue [2015] NZSC 80, Accent Management Ltd v Commissioner of Inland Revenue [2014] NZHC 758.
Court of Appeal on 31 May 2018 in proceedings CA549/17 and CA16/18. In those cases, the Court of Appeal is sitting in a hearing authority jurisdiction.
[25] Mr Hucker noted that in the recent Court of Appeal judgment Muir v Commissioner of Inland Revenue Department15, upholding the summary judgment determination of Associate Judge Bell, the Court of Appeal recognised that had the first instance decisions of Toogood and Jagose JJ16 been determined in favour of Dr Muir, or if in fact the outstanding appeal to the Court of Appeal from those High Court judgments are successful, then Associate Judge Bell would have erred in his finding that there was tax due. He would have therefore erred in entering summary judgment.
[26] In his notice of application for leave to appeal to the Supreme Court of 21 May 2018 (SC4/2018) Dr Muir relies upon the Supreme Court decision Tannadyce Investments Ltd v Commissioner of Inland Revenue17 for the proposition that courts sitting as hearing authorities (which does or did not include Associate Judge Bell) have exclusive jurisdiction to determine all matters that can be raised in proceedings under pt 8A. This includes whether “the day of final determination of liability” has arrived. In the leave application Dr Muir has invoked as a ground of appeal, the question of whether the Supreme Court should reconsider the principles articulated in Tannadyce.
[27] In reliance on the inherent jurisdiction Mr Hucker submitted that the jurisdiction exists even where there may not be a counterclaim or set-off in conventional terms that has been pursued under s 17 of the 2006 Act. Mr Hucker argued that in order properly to address the balance between on the one hand the stigma of bankruptcy and on the other, the issue of finality in litigation, I should grant an adjournment pending the determination of the application for leave to appeal to the Supreme Court. In the circumstances, he says that is a modest and reasonable request. He further argued, with a view to emphasising the potential injustice to Dr Muir, that Dr Muir has not had his say on the merits of his second amended statement of claim. The judgments at issue dealing with those amended pleadings, namely the decisions
15 Muir v Commissioner of Inland Revenue, above n 8.
16 At [34] to [36].
17 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153.
of Toogood and Jagose JJ, both held that the amended pleadings should never have been accepted for filing in the first instance.
The case for the IRD
[28] The Commissioner says that it is not appropriate for a Court hearing an application to set aside a bankruptcy notice to reopen issues argued and determined in a previous proceeding, such as the proceeding in which the judgment debt was obtained. The Commissioner relies upon the decision Re Hampton, ex parte Minter Ellison Rudd Watts.18
[29] The Commissioner further contends that as a matter of credibility and reputation, the Court must uphold the principle of finality of litigation.
Analysis and decision
[30] Dr Muir has provided no real or satisfactory explanation as to why he has not sought or obtained a stay of execution of the underlying summary judgment, the basis of the bankruptcy notice. The decision of the Court of Appeal19 upholding the summary judgment is binding on me; so too is the conclusion of that Court that there is no issue with the safety or integrity of that summary judgment. The allegation that Associate Judge Bell lacked jurisdiction was clearly rejected. A substantial sum of tax is owed by Dr Muir and remains unpaid.
[31] I do not accept Mr Hucker’s submission about the safety of the summary judgment. To do so would put me in the invidious and untenable position of having to make an assessment of whether there is any credible basis for the application for leave to appeal to the Supreme Court, in circumstances where I am bound to conclude that the Court of Appeal was correct. The more appropriate course, and which Dr Muir clearly elected not to take, would have been to seek a stay of execution.
18 Re Hampton, ex parte Minter Ellison Rudd Watts, above n 6, at [29]-[51].
19 Muir v Commissioner of Inland Revenue, above n 8.
[32] I likewise do not accept the submission of Mr Hucker that I should not be troubled by or attempt to speculate as to whether the Supreme Court will grant the application for leave to appeal. The practical and sensible solution he says, is to grant what would be a relatively short adjournment. However, it is important that the exercise of my inherent jurisdiction proceed on a principled basis. Matters of convenience and expediency will not suffice.
[33] I find that as a matter of discretion I should decline to grant the adjournment sought and/or set aside the bankruptcy notice. There are no exceptional circumstances or principled basis for doing so. My reasons are as follows:
(a)The challenge to the safety of the underlying summary judgment is not a cross claim for the purposes of s 17 of the 2006 Act. The allegation of lack of jurisdiction was directly raised before Associate Judge Bell. His Honour rejected the allegation and the decision was upheld on appeal. No stay of execution of that judgment has been sought or granted. In the circumstances, there is no credible basis to hold that there are any concerns about the safety or integrity of the underlying summary judgment;
(b)As a matter of credibility and reputation, the Court should uphold the principle of finality of litigation. Dr Muir has already sorely tested that principle and a line must now surely be drawn. That was clearly the conclusion of Toogood and Jagose JJ and the Court of Appeal in upholding the summary judgment of Associate Judge Bell. I also rely on the observation of Mallon J for the Court of Appeal in Muir v Commissioner of Inland Revenue Department20 where Her Honour referred to the risk of judgments on outstanding tax being perpetually on hold because of endless amended pleadings.
(c)There is no serious injustice to Dr Muir that might justify the grant of the adjournment sought. I accept that Dr Muir has not had a hearing on the merits of his second amendment statement of claim. However, as
20 Muir v Commissioner of Inland Revenue, above n 8, at fn 38.
reasoned by Associate Judge Bell on the summary judgment decision,21 that is the consequence of the operation of the procedural rule of abuse of process. Having said that, in no credible sense has there been a failure by the legal system in this case to hear the substance of Dr Muir’s claims.
(d)I also accept that the consequence of my decision not to grant an adjournment will be that Dr Muir, a practicing lawyer, has committed an act of bankruptcy. However, that does not constitute an exceptional circumstance which might justify the exercise of my discretion. In any event, if the Supreme Court does grant leave to appeal, then Dr Muir can seek a halt of any adjudication proceedings pursuant to s 42 of the Insolvency Act 2006.
Result
[34] The application by Dr Muir to set aside his bankruptcy notice is dismissed. I also decline to grant any adjournment.
[35] In accordance with the principle that costs follow the event, the Commissioner is entitled to costs. If the parties cannot agree on costs, memoranda are to be filed by 29 June 2018.
Associate Judge P J Andrew
21 Commissioner of Inland Revenue v Muir, above n 2, at [37]-[44].
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