Commissioner of Inland Revenue v Raynal

[2023] NZHC 1664

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1083

[2023] NZHC 1664

IN THE MATTER

AND

of the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of CHRISTOPHER RAYNAL

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

AND

CHRISTOPHER RAYNAL

Judgment Debtor

Hearing:	On the papers
Appearances:	V S Young for the Judgment Creditor
Judgment:	30 June 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 30 June 2023 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Inland Revenue Legal Services, Auckland

THE COMMISSIONER OF INLAND REVENUE v RAYNAL [2023] NZHC 1664 [30 June 2023]

Introduction

[1]    A without notice application for leave to serve a bankruptcy notice out of New Zealand has been filed by the Commissioner of Inland Revenue (the Commissioner) in respect of Mr Christopher Raynal. The bankruptcy notice is for

$373,513.77, the amount of a final judgment obtained against  him  in  the  Waitākere District Court on 5 July 2022. The notice records that execution of the judgment has not been stayed.

[2]    Mr Raynal currently resides in Australia. An affidavit has been filed providing evidence of this by Craig Steven Ogden, a case officer for Inland Revenue. Mr Ogden has annexed a summary of Mr Raynal’s travel movements  provided  by  Immigration New Zealand. In addition, Mr Ogden has obtained Mr Raynal’s residential and postal addresses from the Australian Taxation Office.

[3]    I begin by setting out the law applying to an application for leave to serve a bankruptcy notice outside of New Zealand before applying the legal principles to the facts of this case.

Legal principles relating to leave to serve a bankruptcy notice overseas

[4]    Section 17(3) of the Insolvency Act 2006 provides that a debtor must be served with a bankruptcy notice in New Zealand unless the court gives permission for service of the notice on the debtor outside New Zealand.

[5]    Section 13(3) of the Trans-Tasman Proceedings Act 2010 (TTPA) states that leave is not required to serve an initiating document in Australia. “Initiating document” is defined in s 4 as:

… a document –

(a)by which a civil proceeding is commenced in a New Zealand court or tribunal; or

(b)by reference to which a person becomes a party to a civil proceeding in a New Zealand court or tribunal.

[6]    A bankruptcy notice, although issued by a court, is not a document commencing a civil proceeding or a document by reference to which a person becomes a party to a civil proceeding because it does not by itself trigger any process for the exercise of the court’s civil jurisdiction.1 The consequences of non-compliance with the notice is that the debtor may face a bankruptcy application.

[7]    It appears to be inconsistent for leave to be required for a bankruptcy notice when leave is not required for the bankruptcy application itself. Bankruptcy proceedings do not require leave because they fall within s 13(3) of the TTPA. This is especially the case when the court registries tend to allocate the same CIV number to the request for a bankruptcy notice and the bankruptcy application, maintaining one file throughout. It would also appear to be consistent with the purpose of the TTPA for the TTPA to apply so leave is not required.

[8]    However, r 24.11 of the High Court Rules expressly provides that the bankruptcy application is required to be “commenced by filing an originating application in Form B3”. The reference to filing as an “originating application” means that under the rules the issue of the bankruptcy notice and the bankruptcy application are technically two separate proceedings. The bankruptcy notice does not therefore fall within the definition of an “initiating document” in the TTPA.

[9]Leave is therefore required for service of the bankruptcy notice in Australia.

[10]   Any application for leave to serve the bankruptcy notice outside New Zealand needs to be considered pursuant to r 6.30 of the High Court Rules 2016 as it relates to service of “other documents” outside New Zealand. Rules 6.27 to 6.28 apply in respect of originating documents in proceedings but a bankruptcy notice is not an originating document in a civil proceeding for the same reasons as discussed above in relation to whether a bankruptcy notice is an “initiating document” in a civil proceeding for the purposes of the TTPA.

[11]   In Westpac New Zealand Limited v Boulton, Associate Judge Bell held that on applications for leave to serve a bankruptcy notice out of New Zealand, although leave

1      Westpac New Zealand Ltd v Boulton [2014] NZHC 693 at [12].

needed to be considered under r 6.30, the appropriate test is the test under r 6.28(5) of the High Court Rules with one modification.2 As a bankruptcy notice is not a civil proceeding, Associate Judge Bell’s approach was to look forward to any future bankruptcy application that might be brought by the creditor, relying on non-compliance with the bankruptcy notice. In his Honour’s view, whether leave ought to be granted should be considered in terms of such a proceeding. The modification proposed was that in addition to the r 6.28(5) factors, the Court ought to consider whether it would be appropriate for any bankruptcy of the debtor to be administered in New Zealand. If satisfied under the r 6.28(5) factors in respect of the consequent bankruptcy application and after considering the modification, leave would generally be given for service of the bankruptcy notice overseas.

[12]   I consider the above approach sensible and so consider the s 6.28(5) factors below in terms of the bankruptcy application that may follow the bankruptcy notice in this case.

What are the r 6.28(5) factors?

[13]Rule 6.28(5) of the High Court Rules provides:

6.28     When allowed with leave

…

(5)The court may grant an application for leave if the applicant establishes that—

(a)the claim has a real and substantial connection with New Zealand; and

(b)there is a serious issue to be tried on the merits; and

(c)New Zealand is the appropriate forum for the trial; and

(d)any other relevant circumstances support an assumption of jurisdiction.

[14]I consider each of the factors below.

2      Westpac New Zealand Ltd v Boulton, above n 1, at [14].

Is there a real and substantial connection with New Zealand?

[15]   An applicant will satisfy the Court that a claim has a “real and substantial connection” with New Zealand if it can show that the claim has some connection with New Zealand that is not fleeting or peripheral, and that the New Zealand Court has jurisdiction in respect of the claim (noting that whether New Zealand is the appropriate forum is another question under r 6.28(c)).3

[16]   The relevant claim, as discussed above, is the future (potential) bankruptcy application. The debt on which the bankruptcy notice is based, and which would also form the basis of the bankruptcy application, arose under New Zealand legislation, namely the Income Tax Act 2007 and the Goods and Services Act 1985, while the judgment debtor resided in New Zealand. Mr Raynal did not meet his tax obligations over a number of years, with the judgment debt relating to the income tax years 2006 to 2017 inclusive. The unpaid tax is recoverable by the Commissioner on behalf of the Crown under s 156 of the Tax Administration Act 1994.

[17]   As stated, judgment was obtained against the judgment debtor on 5 July 2022 at the Waitākere District Court for the amount of $373,513.77. The evidence filed with the application for leave is that the judgment debtor left  New  Zealand on        7 May 2010. There is no further evidence of the connection of the proceeding with New Zealand, for example whether Mr Raynal owns property in New Zealand. However, I am still satsifed that the claim has a real and substantial connection with New Zealand due to judgment being entered against Mr Raynal in a New Zealand Court.

Is there a serious issue to be tried?

[18]   The Court of Appeal in Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd held that in considering whether there is a serious issue to be tried on the merits, the Court must be satisfied that there is a serious legal issue to be tried and that there is a sufficiently strong factual basis to support the legal right asserted.4

3      McGechan on Procedure (online ed, Thomson Reuters) at [HR6.28.02(1)].

4      Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [37].

[19]   The serious issue to be tried in the bankruptcy proceedings that would follow would be non-compliance with the bankruptcy notice and whether the judgment debtor ought to be adjudicated bankrupt.

[20]   Counsel for the Commissioner submits that as the debt is in respect of outstanding tax, penalties and interest are continuing to accrue under Parts 7 and 9 of the Tax Administration Act. As at 4 April 2023, counsel submits that the amount outstanding, including penalties and interest, is $500,954.96.

[21]   The Commissioner therefore submits that the amount that is sought to be recovered is not trifling. In addition, the fact that the bankruptcy notice is based on a District Court judgment provides a sufficiently strong basis to support the judgment creditors’ claim in the bankruptcy notice. The judgment has been certified by the District Court and there are no live applications to set aside or appeal. I accept therefore that there is a serious issue to be tried.

Is New Zealand the appropriate forum?

[22]   In Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd, the Court of Appeal held that the factors relevant to the determination of whether New Zealand is the appropriate forum are:5

(a)the law governing the relevant transactions;

(b)issues of convenience or expense;

(c)availability of witnesses;

(d)the places where parties resided or carried on business;

(e)whether other related proceedings are pending elsewhere;

(f)whether the New Zealand Court would provide the most effective relief or whether a foreign court is in a better position to do so;

5      Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd, above n 4, at [45]–[46].

(g)whether the overseas defendant will suffer an unfair advantage if a New Zealand Court assumes jurisdiction; and

(h)any choice of jurisdiction previously agreed by the parties.

[23]   The onus is on the party effecting service to show that New Zealand is the most appropriate forum for trial.6

[24]   Counsel for the Commissioner submits that New Zealand is the natural and most appropriate forum for the resolution of the bankruptcy proceedings for the following reasons:

(a)the judgment debt on which this proceeding is based arose under  New Zealand law while the judgment debtor resided in New Zealand;

(b)if the judgment creditor were required to proceed with its claim in the foreign jurisdiction, it would face the added burden of having to apply for the judgment to be recognised in the courts of that jurisdiction;

(c)there is no guarantee the judgment would be recognised in the foreign jurisdiction;

(d)factors of cost and convenience lie in favour of the bankruptcy proceeding being determined in New Zealand given the location of counsel and witnesses;

(e)factors of cost and convenience lie in favour of the judgment debtor’s bankruptcy being administered in New Zealand given the location of the judgment creditor and the ability of the Official Assignee to make enquiries; and

(f)New Zealand is the forum that would be more suitable in the interests of the parties concerned and in the interests of justice.

6      Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd, above n 4, at [44].

[25]   I agree with these factors and that apart from the process server, the witnesses for the bankruptcy proceedings will be Inland Revenue officers as the necessary evidence relates to the debt owing and whether it has been paid. In addition to evidence of service, evidence will be required regarding the issue of the bankruptcy notice and whether it was complied with, all of which will need to be given by an Inland Revenue officer based in New Zealand.

[26]   Finally the Commissioner submits that the judgment debtor will not suffer an unfair disadvantage if the New Zealand courts assume jurisdiction and that there are no related proceedings which establish a connection between the parties and any other jurisdiction and so New Zealand is the most appropriate forum for the proceedings..

[27]   After considering the above factors it appears New Zealand would be the appropriate forum for the resolution of the bankruptcy proceedings.

Are there any other relevant circumstances supporting an assumption of jurisdiction?

[28]   Counsel for the Commissioner submits that there is a particular circumstance supporting an assumption of jurisdiction. Section 110 of the Tax Administration Act assists the Commissioner as it permits the production of any document purporting to be a copy of or extract from any tax return, income statement or assessment to be treated as the original, which is a right that counsel submits is unlikely to be afforded to the Commissioner in other jurisdictions. The evidence to substantiate the Commissioner’s claim against the judgment debtor will include Inland Revenue records. If the application to adjudicate the judgment debtor bankrupt proceeds in New Zealand, the Commissioner will be able to rely on s 110.

Would it be appropriate for any bankruptcy of the debtor to be administered in New Zealand?

As set out by Associate Judge Bell in Westpac New Zealand Limited v Boulton, Australia and New Zealand have both adopted cross-border insolvency legislation under    the    UNCITRAL    Model    Law    on  Cross-border   Insolvency.7  The

7      Westpac New Zealand Ltd v Boulton, above n 1, at [18].

Official Assignee, as a New Zealand insolvency administrator, could apply to an Australian court for recognition of a New Zealand bankruptcy and for associated relief allowing the bankruptcy to be administered and enforced in Australia. Any difficulties that would arise through the bankruptcy being administered here could therefore be resolved through these mechanisms.

Conclusion on leave

[29]   Taking all of the above factors into account, I consider it is appropriate for leave to be granted to serve the bankruptcy notice on Mr Raynal in Australia as any bankruptcy application that follows would satisfy the r 28(5) factors. In addition, it would be appropriate for the bankruptcy to be administered here given Australia and New Zealand have both adopted the cross border insolvency legislation.

Order under s 17(4)(b) of the Insolvency Act fixing time for compliance

[30]   Section 17(4)(b) of the Insolvency Act requires an order fixing the time in which the judgment debtor must comply with the bankruptcy notice to be included in any order for leave.

[31]   In the draft orders filed with the application for leave, the Commissioner proposes a period of 20 working days after service. The usual period where service is within New Zealand is 10 working days. Under s 17 of the TTPA, the period for filing an appearance or response to an initiating document served is the longer of 30 working days or the period that would have applied under the relevant procedural rules in New Zealand. This will be the period that applies to any bankruptcy proceedings filed.

[32]   The appropriate period for compliance with a bankruptcy notice is not necessarily the same as the appropriate period for responding to proceedings. In the circumstances, however, I consider 30 working days to be more appropriate as the debt that is the subject of the bankruptcy notice is for a significant sum and the bankruptcy notice is based on a default judgment.

Result

[33]I order:

(a)leave is granted to the Commissioner of Inland Revenue to serve the bankruptcy notice dated 31 May 2023 on the judgment debtor in Australia; and

(b)the time for compliance with the bankruptcy notice is 30 working days after the date of service.

Associate Judge Sussock