Commissioner of Inland Revenue v Robertson
[2017] NZHC 31
•27 January 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-406-15 [2017] NZHC 31
BETWEEN COMMISSIONER OF INLAND
REVENUE Plaintiff
AND
STUART DOUGLAS ROBERTSON Defendant
Hearing: 13 December 2016 Appearances:
R B Hucker and Ms Selby for Defendant, in support
K Morrison and E Meade for Plaintiff, to opposeJudgment:
27 January 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 27 January 2017 at 3pm
pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Meredith Connnell (K Morrison/E Meade), Auckland, for Plaintiff
Hucker & Associates (R B Hucker), Auckland, for Defendant
COMMISSIONER OF INLAND REVENUE v STUART DOUGLAS ROBERTSON [2017] NZHC 31 [27
January 2017]
Contents
Paragraph No.
Introduction 1 A procedural matter 6 The principles on defendants’ summary judgment applications 7 Facts 8 General propositions 29 Overpayments to a company in liquidation
30
Did a right to GST refunds vest in RVB Corporate Trustees Ltd under s 47 of the Trustee Act 1952?
38
Can Mr Robertson rely on the deed of 29 March 2010 in this application?
39
The effect of Hukatere’s trusteeship ending on liquidation
43
The effect of Hukatere’s trusteeship ending under the
deed of 29 March 2010
44
Section 46(6) of the Goods and Services Tax Act
64
Who received the Commissioner’s payments? 67 The Commissioner’s cause of action for breach of duty and
misapplication of assets
68
The claim under Ex parte James
81
The claim for money paid under a mistake
90
The change of position defence
96
The estoppel defence
100
The missing $7,522.69
106
Two further objections by Mr Robertson
Mr Robertson’s response to the Commissioner’s claim
in the liquidation107
108
Mr Robertson’s reliance on s 248(1)(c) of the Companies Act
111
Result
126
Introduction
[1] Mr Roy Brown is a property trader. His preferred mode of business is by trading trusts with assetless corporate trustees. This case involves one of them, the WBR Trust. Its trustee was Hukatere Coastal Trustees Ltd. In 2010 Hukatere was insolvent. It was in arrears with its goods and services tax. Mr Brown purported to remove Hukatere as trustee and to appoint another trustee, RVB Corporate Trustee Ltd. In April 2010 he put Hukatere into liquidation and appointed Mr Robertson liquidator. The Commissioner of Inland Revenue submitted a claim of $213,921.70 in the liquidation while indicating that other GST returns were under investigation. That review showed that Hukatere was owed refunds for two GST periods but that the Commissioner remained a net creditor in the liquidation.
[2] In September 2010 Mr Robertson as Hukatere’s liquidator received two payments from the Commissioner of Inland Revenue totalling $159,910.58, said to be for GST refunds. In December 2010 Mr Robertson paid out $152,387.89 of the funds he had received from the Commissioner to Isolve Accounting and Taxation Ltd, an accounting practice that acted for RVB, said to be the new trustee of the WBR Trust.
[3] The Commissioner says that the refunds should not have been paid and sues Mr Robertson to recover the $159,910.58. There are three causes of action in her statement of claim:
(a) a claim under s 301 of the Companies Act 1993 to recover funds misapplied by Mr Robertson;
(b) recovery under the principle in ex parte James; 1 and
(c) recovery of money paid under a mistake.
[4] Mr Robertson says that none of these causes of action can succeed. He has applied for summary judgment under r 12.2(2) of the High Court Rules. His case is:
1 Re Condon, ex parte James (1874) LR 9 Ch App 609.
(a) The right to the GST refunds passed to RVB before Hukatere went into liquidation. Accordingly, it was not an asset in Hukatere’s liquidation or something to which Hukatere was entitled as a former trustee of the WBR Trust.
(b) RVB was entitled to the GST refund cheques.
(c) He dealt with the IRD cheques appropriately by banking them in his trust account and then paying their proceeds to RVB, the new trustee of the WBR Trust, when it asked for them.
(d)He has not breached any duty that could give rise to any claim under s 301 of the Companies Act.
(e) The Commissioner has suffered no loss.
(f) This is not a case for the exercise of the discretion under Ex parte James. He was not the payee of the Inland Revenue cheques. He no longer holds the funds.
(g)As he personally did not receive the Inland Revenue payments, he cannot be the target for a claim for money had and received. Besides, the Commissioner did not make any mistake in paying the refunds.
(h) He has a change of position defence.
(i) The Commissioner is estopped from recovering the payments.
(j)The Commissioner is not a creditor in the liquidation because he rejected her claim and she did not apply to the court to reverse or modify that decision.
(k)The Commissioner was not entitled to continue with her review of Hukatere’s GST returns after liquidation as that was barred under s 248(1)(c ) of the Companies Act 1993.
[5] For the reasons set out in this judgment, I dismiss Mr Robertson’s application. In summary Mr Robertson has not satisfied me that all of the Commissioner’s causes of action are bound to fail. The Commissioner had a restitutionary claim against Hukatere for a mistaken payment made after it went into liquidation. That claim was not affected by his provisional rejection of the Commissioner’s claim in the liquidation. The Commissioner was not barred from continuing to establish Hukatere’s GST liabilities after it went into liquidation. Before Hukatere went into liquidation, the right to the refunds did not pass to RVB, even if Mr Robertson establishes that Hukatere was removed as trustee before it went into liquidation. Insolvency set-off under s 310 of the Companies Act took effect on liquidation. That extinguished any debt for GST refunds. Hukatere received the GST payments, not Mr Robertson personally. The Commissioner has an arguable claim against Mr Robertson for misapplication of assets by paying out so as to deprive the company of funds to meet the Commissioner’s restitutionary claim. It is not clear that the discretion under Ex parte James would be exercised in his favour. The claim for money had and received is marginal because Mr Robertson personally does not appear to have the received funds (apart from a small amount he kept), but it does escape strike out. The change of position and estoppel defences are trial issues. His summary judgment application has not addressed the small amount he kept for himself.
A procedural matter
[6] Under r 12.4(3) of the High Court Rules Mr Robertson could apply as of right for summary judgment when he filed his statement of defence. That was on
1 December 2015. He did not apply for summary judgment until 8 September 2016. He accordingly needed leave under r 12.4(3). The matter is covered in Associate Judge Doogue’s minute of 19 August 2016. While Associate Judge Doogue did not expressly grant leave it is clear from paragraph [2] of his minute that he ruled that the summary judgment should be heard. There was no application to review that direction. Even if leave had not been granted earlier, I would have granted it, given
the considerable efforts both sides put into preparing for the hearing.2
2 Manukau Golf Club Inc v Shoye Venture Ltd HC Auckland CIV-2010-404-4422, 17 October
2011 at [4].
The principles on defendants’ summary judgment applications
[7] The Court of Appeal laid down the principles on which defendants’ applications for summary judgment are decided in Westpac Banking Corp v M M Kembla NZ Ltd.3 The principles are well known and do not need to be repeated.
Facts
[8] The WBR Trust was established by a trust deed dated 12 November 2004. Mr Brown is the settlor. Hukatere Coastal Trustees Ltd is the trustee. The front page of the trust deed would conventionally show at its foot the name and place of business of the law firm that drew up the deed, but in its place are the words “Stuart D Robertson, Fiduciary, Auckland”. I infer that Mr Robertson had some part in establishing the trust. He is not a lawyer but has practised as an accountant. The deed establishes a discretionary trust. Clause 19.1(e) provides that the office of the trustee shall be vacated if (amongst other things) the trustee, being a corporation, is put into liquidation or receivership. Under clauses 7 and 8 an appointor has statutory
powers of appointment and also has powers to remove and appoint new trustees.4
The deed does not, however, identity anyone as appointor.
[9] Hukatere Coastal Trustee Ltd was incorporated on the same day the trust was formed, 12 November 2004. Mr Brown is the only director and shareholder. By shareholder’s resolution on 14 April 2010 he put Hukatere into liquidation. Mr Robertson was appointed liquidator and held that office until he was removed in
2012 by this court on the Commissioner’s application.
[10] There is a dispute whether Hukatere was still a trustee of the WBR Trust when it went into liquidation. Mr Robertson relies on a deed Mr Brown is said to have signed on 29 March 2010 under which he removed Hukatere as trustee and
appointed RVB in its place. The alternative view is that the trusteeship ended
3 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [58]-[64]; applied in Bernard v Stace (2000) Ltd (2001) 15 PRNZ 338 (CA) at [18]-[22]; and Attorney- General v Jones (2003) 16 PRNZ 715 (PC) at [5].
4 The numbering of clauses in the deed is inconsistent: a number for a clause in a heading does not always match the number in the clause. For this decision I use the numbers in the headings.
automatically under clause 19 of the trust deed on the company going into liquidation. There are some unusual features to the deed of 29 March 2010, which I shall refer to later.
[11] On 7 May 2010 the Commissioner lodged a claim with Mr Robertson as Hukatere’s liquidator for $213, 921.70 for GST incurred by Hukatere in 12 taxable periods between February 2008 and February 2010. In a covering letter the Commissioner said:
I advise that this is not our final claim as the company is subject to an investigation and upon its completion an amended claim will be filed.
[12] Mr Robertson’s reply of 11 May 2010 said:
Until such time as the assessments are issued for the periods under review and the refunds are determined and applied to the periods showing indebtedness, your proof of debt is rejected.
The liquidator is of the opinion that the Inland Revenue Department is in fact a debtor to the Trust which will give rise to a reimbursement entitlement; therefore the liquidator will be looking for the early conclusion of the review and release of funds.
[13] In a reply of 24 May 2010 the Inland Revenue maintained that the debt was certain, but that refunds could be offset against the debt in the future. It referred to s 46 of the Goods and Services Tax Act 1985 as providing that the Commissioner will only refund the amount when she is satisfied as to the correctness of the refund. At the time of the letter the Commissioner was not satisfied with the refunds claimed and stated that it was possible that they may be disallowed. There was no further correspondence between Mr Robertson and the Commissioner at that stage about that claim.
[14] In a letter of 15 July 2010, not put in evidence but recorded in an Inland Revenue letter of 18 August 2010, Mr Robertson advised that Hukatere’s trusteeship ended on liquidation.
[15] Even before Hukatere went into liquidation the Inland Revenue had been investigating WBR Trust’s GST returns. On 27 May 2009 the Inland Revenue wrote to Mr Brown enclosing a notice of proposed adjustment for the trust.
The Commissioner was undertaking an audit for the GST periods, 30 April 2007,
30 September 2007 and 30 April 2008. While the audit was carried out, the Inland Revenue placed a halt on the WBR Trust account, meaning that no refunds would be released.5
[16] On 25 June 2010, the Inland Revenue sent Mr Robertson a statement of position and a notice under s 89M of the Tax Administration Act 1994 requiring the trustee of the WBR Trust to provide a statement of position. The Commissioner’s statement disallowed a GST input claim for the period ending 30 April 2007, so as to reduce substantially the amount of a refund claimed for that period; increased the refund for the period ending 30 September 2007; increased the GST payable for the period ending 30 April 2008; and proposed shortfall penalties for two of those periods. If Hukatere wished to avoid these outcomes, it was required to give its own statement of position within two months. Mr Robertson did not reply. On
13 September 2010 the Inland Revenue wrote to Mr Robertson, noting that no statement of position had been received and the Commissioner’s position was deemed to have been accepted under s 89M(7) of the Tax Administration Act. Notices of assessment were to issue shortly. That represented the end of the audit and the dispute procedure under Part 4A of the Tax Administration Act. The halt on the WBR Trust account was removed.
[17] The Inland Revenue sent Mr Robertson two cheques totalling $159,910.58 by way of GST refund. One dated 15 September 2010 was for $2,248.54 for the GST period ending 30 April 2007 and a second dated 20 September 2010 was for
$157,662.04 for the GST period to 30 September 2007. The cheques were paid into
an account named “Stuart Douglas Robertson Chartered Accountant Trust” on
24 September and 19 October 2010 respectively.
[18] On 21 December 2010 Mr Brown wrote to Ms Phillimore of Isolve
Accounting and Taxation Ltd:
I am aware that you are holding funds on trust on behalf of the WBR Trust.
5 See s 46 of the Goods and Services Tax Act 1985.
As you may be aware, WBR Trust appointed a new trustee earlier this year. A copy of the deed of appointment is attached. Would you kindly release the funds you hold by way of a bank cheque payable to Napier Investment Trust.
The letter does not say in what capacity Mr Brown made this request, but I assume that he did so as director of RVB, the presumed replacement trustee. On the same day Ms Phillimore wrote to Mr Robertson:
It has been brought to my attention that you are holding funds on behalf of the WBR Trust.
As the company of which you are liquidator was replaced as the trustee of the trust in March 2010, the current trustee has asked that I request the funds to be released to my imprest account
Please deposit the funds to Isolve Accounting and Taxation Ltd: 12-3038-
03723-01.
On the same day $152,387.89 was paid from Mr Robertson’s trust account to the account in Ms Phillimore’s letter. Accordingly, Mr Robertson paid out most of the funds he had received from the Inland Revenue. Payments of $30,000 and
$120,000.00 were then made from the account of Isolve Accounting and Taxation
Ltd to Napier Investment Trust.
[19] The trustee of Napier Investment Trust is Shakespeare Trustees Ltd, another of Mr Brown’s assetless corporate trustees. Mr Brown resolved by shareholder resolution to put that company into liquidation on 17 February 2011. He appointed Mr Robertson liquidator. There is no evidence that Shakespeare Trustees Ltd is or ever has been a trustee or beneficiary of the WBR Trust. On 17 February 2011
Mr Brown as shareholder resolved that RVB Corporate Trustees Ltd should be put into liquidation, again appointing Mr Robertson as liquidator.
[20] Hukatere’s GST position at 13 September 2010 was arguably as follows:
(a) It owed $213,921.70 as set out in the Commissioner’s claim in May
2010;
(b) It was entitled to the refunds totalling $159,910.58 for the periods 30
April 2007 and 30 September 2007;
(c) The GST payable for the period ending 30 April 2008 was increased from $92,551.08 to $128,106.63, but the evidence is not clear whether any of this had been paid;
(d) It owed shortfall penalties of $19,895.83 for the period ending
30 April 2007; and
(e) It owed a shortfall penalty of $3,555.55 for the period ending 30 April
2008.
This gives only a general and provisional view. The point to note is that Hukatere owed more than the refunds due to it. I have not netted the sums. Counsel for the Commissioner demurred at my doing so because adjustments may be required in the light of further information from the Inland Revenue, presumably interest on unpaid GST up to the date of liquidation. Mr Robertson’s case is that they cannot be netted because the right to the refund passed to RVB. Moreover, Mr Robertson does not accept the above position: that will require consideration of his arguments based on his response to the Commissioner’s claim and on the effect of s 248 of the Companies Act.
[21] The Inland Revenue’s explanation for sending the refund cheques to Mr Robertson in September 2010 is that the team who carried out the GST audit assumed that there was an automatic off-set of refunds against tax debts in the Inland Revenue system, but this was mistaken. The officer responsible for handling the claim in the liquidation realised on 30 November 2010 that the payments had been made. Those who had authorised the payment were apparently not concerned as the payment had gone to the liquidator. There was an attempt to stop payment but that was too late as the cheques had already been banked. There was no further follow- up action by the Inland Revenue at that stage.
[22] Part of the Commissioner’s case is that Mr Robertson, Ms Phillimore and Mr Brown are long-standing associates of each other. The statement of claim refers to various entities in which they had interests. It is not necessary to go into those matters in detail for this decision. It is arguable for the Commissioner that there was
a professional relationship between Mr Robertson and Mr Brown going back many years. That goes to the background against which the Commissioner’s claims may be assessed. Questions of lack of independence may be relevant to the claim of breach of duty as liquidator.
[23] On 12 November 2010 the Commissioner began a proceeding to have Mr Robertson removed as liquidator of Hukatere and of two other insolvent assetless corporate trustees of Mr Brown.6 The Commissioner’s grounds were that Mr Robertson was disqualified under s 280(1)(ca) and (cb) of the Companies Act.7
The proceeding resulted in his being removed as liquidator but without a full hearing on the merits. His defence was struck out. It is not necessary to go into the details of the proceeding. Associate Judge Abbott set them out in his recall decision.8 The effect of Mr Robertson being disqualified from acting as a liquidator does not require consideration. Section 281 of the Companies Act provides that the acts of a person as a liquidator are valid even though that person is not qualified to act as a liquidator.
[24] The Commissioner did not formally raise the matter of the payments of September 2010 as an issue in her removal application. The Inland Revenue did not notice the problem until after the proceeding had started. In the course of the proceeding her lawyers asked for an explanation. On 6 March 2012 Mr Robertson’s lawyer (not Mr Hucker) forwarded an email by him which said:
After my appointment a cheque arrived in the post addressed to the Trust. It was banked into my Trust Account awaiting clarification for what I needed to do with it as I had planned to return it to the IRD.
The Trust (by way of the replacement Trustee) advised their Accountant who then advised me that a new Trustee had been appointed prior to my appointment and I had no right to withhold the proceeds and insisted that I release the moneys without deduction. I did so.
6 Commissioner of Inland Revenue v Robertson HC Auckland CIV 2010-404-7526.
7 Under s 280(1)(ca) of the Companies Act, a liquidator is disqualified from office if he or she has
provided professional services to the company within the two years immediately before the start of the liquidation, unless the board of the company resolves that on appointment of the liquidator the company will be able to pay its debts. Under s 280(1)(cb), the liquidator is disqualified if, in the two years immediately before the commencement of the liquidation, the liquidator had a continuing business relationship with the company, its majority shareholder, its directors or secured creditors, unless within 20 working days before the appointment of a liquidator the board of the company resolves that the company will be able to pay its debts.
8 Commissioner of Inland Revenue v Robertson [2012] NZHC 1215.
That is the total explanation.
[25] The Commissioner’s case is that this is the first she knew that the GST refund had been paid out by Mr Robertson. Mr Robertson’s explanation is not necessarily complete. He held back $7,522.69 of the payments received from the Inland Revenue.9 Notwithstanding that, Mr Robertson denies receiving any payment for his work in the liquidation.
[26] Two reports as liquidator have been put in evidence. The first, dated 22 April
2010, includes this:
It appears that the only remaining asset due to the Trustee could be a GST
refund being withheld by the Inland Revenue Department.
[27] The second, dated 12 November 2010, covers the period 14 April to
14 October 2010, during which he received the payments from the Inland Revenue. The report includes these:
There have been no realisations, no distributions and no liquidator
remuneration during the period…
An ongoing dispute between the Trust and the Inland Revenue Department wherein certain transactions of the Trust have been disallowed will have a material outcome on the trusts final liabilities. The Trustee now in Liquidation is totally dependent on the obligation of the Trust to indemnify the Trustee for claims made in the Liquidation.
It does not refer to the completion of the dispute under s 89M of the Tax Administration Act, the payments from the Inland Revenue or that Hukatere had been removed as trustee.
[28] The Commissioner did not begin this proceeding until June 2015.
General propositions
[29] To put the rest of this case into context, I set out some general propositions. They are not meant to be comprehensive or exhaustive. They are subject to
9 The difference between what he received from the Inland Revenue and what he paid to Isolve.
exceptions and qualifications, but it is not necessary to go into them in detail at this stage.
(a) A trust is not an independent entity. A trustee who incurs a liability as trustee is personally liable for that debt. That includes any liability for taxes.10 A trustee alleged to be liable may generally raise all defences that would be available if he or she were not a trustee.
(b) A trustee has a right of indemnity for any liability incurred as trustee.
That right of indemnity is secured by an equitable lien over trust assets, which includes rights of realisation, retention, exoneration and reimbursement from the trust assets.11
(c) As a conveyancing shortcut, when a trustee retires or is removed, trust assets vest in the new trustee without the need for specific words of conveyance.12
(d)The retirement or removal of a trustee does not extinguish the former trustee’s liability for debts incurred before retirement or impose any liability on the new trustee for those debts but the new trustee takes the trust assets subject to the former trustee’s rights of indemnity for that liability, including the equitable lien.
(e) When a company goes into liquidation, an unsecured creditor’s rights are transmuted into a claim in the liquidation to share pari passu in a distribution of the company’s assets. The value of the creditor’s claim is ascertained as at the date of liquidation.
(f) Where there have been mutual dealings between a person and a company that goes into liquidation, there is insolvency set-off under s
310 of the Companies Act. The set-off is substantive, not procedural.
10 Commissioner of Inland Revenue v Newmarket Trustees Ltd [2012] NZCA 351, [2012] 3 NZLR
207 at [55].
11 Trustee Act 1956, s 38(2); S and S Ltd v XYZ Ltd [2016] NZHC 26 at [39].
12 Trustee Act 1856, s 47.
It is self-executing and mandatory.13 Contracting out is not permitted.14 The set-off establishes a new net balance, which replaces the earlier claim and cross-claim. Insolvency set-off under s 310 applies to government claims for taxes, even if procedural set-off may not be available if the taxpayer were not in liquidation.15
(g)On liquidation, the assets of the company do not vest in the liquidator, but he takes custody and control of them.16 If the company is a corporate trustee, that includes the trustee’s right of indemnity, which is company property.17
(h)A liquidator has a duty to realise and distribute assets or their proceeds to creditors in accordance with the Companies Act and then to shareholders in a reasonable and efficient manner.18 He is not a trustee, but owes duties similar to a trustee’s. Although often described as an agent of the company, his position is different as he has control of the principal. He owes fiduciary duties to the company
and the general body of creditors, but not to individual creditors. He must act impartially among creditors. A high standard of care and diligence is required. He is required to account for money and assets received in the liquidation.
(i)Money paid under a mistake of fact or of law is recoverable in a claim by the payer for money had and received, even if he or she was careless in making the payment. Defences to the claim include
estoppel and change of position.
13 See Lord Hoffmann’s exposition in Stein v Blake [1996] 1 AC 243 (HL) at 250-255.
14 National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] AC 785 (HL); Rendell v Doors and Doors Ltd (in liq) [1975] 2 NZLR 191 (SC) at 197.
15 Re DH Curtis (Builders) Ltd [1978] 1 Ch 162; Secretary of State for Trade and Industry v Frid
[2004] UKHL 24, [2004] 2 AC 506; and Commissioner of Inland Revenue v The Fishing
Company Ltd [2012] NZCCLR 5 (HC).
16 Companies Act 1993, s 248(1)(a).
17 Levin v Ikiua [2010] 1 NZLR 400 (HC) at [116] and [118]. This aspect of the decision was not in issue in the appeal: Levin v Ikiua [2010] NZCA 509.
18 Companies Act s 253.
(j)Goods and services tax refunds arise when the total amount of output tax for a taxable period is less than the total amount of inputs so as to produce an excess.19 The Commissioner is required to refund the excess, subject to her power to withhold payment while she investigates the return.20 Instead of paying the taxpayer directly, the Commissioner may apply the refund towards other tax payable by that taxpayer, whether or not the taxpayer requests her to do so.21
(k)Under the Goods and Services Tax Act trustees of a trust are an unincorporated body.22 Unincorporated bodies must be registered if they carry on taxable activities under that Act.23 Members of unincorporated bodies (including trustees) need not be registered themselves, but they are jointly and severally liable for all tax payable while they are members.24 They do not cease being members until written notice of the change of membership is given to the Commissioner.25 With changes in trusteeship, successive trustees may come under different GST liabilities which do not overlap.
(l)When a company registered under the Goods and Services Tax Act goes into liquidation, the liquidator becomes a specified agent,26 and as such is not personally liable for tax liabilities incurred before liquidation.27
Overpayments to a company in liquidation
[30] As well as those general principles it is also helpful to consider the basis for
the Commissioner’s claim against Mr Robertson. To do that I take a simple case. This case differs from this basic model, but understanding the model will help in
19 Goods and Services Tax Act 1985, s 20(5).
20 Section 46.
21 Section 46(6).
22 Section 2.
23 Section 51.
24 Section 57(2) and (3).
25 Section 57(3B).
26 Section 58.
27 Section 58(1D).
assessing the Commissioner’s causes of action. A liquidator of a company collects
its receivables. A debtor overpays the amount due. Say it pays $50,000 instead of
$5,000. When asked to repay the excess, the liquidator refuses, saying variously:
(a) The debtor does not have a claim in the liquidation under s 303 of the Companies Act, because under s 306 the amount of a claim must be ascertained at the date of the liquidation, and at that date the debtor had no claim.
(b)Even if it had a claim, the debtor would rank as an unsecured creditor to share pari passu with all other unsecured creditors (and the assets will not satisfy all the preferential creditors, let alone the unsecured creditors).
Those responses are unappealing. Thoughts of windfall and unjustified enrichment come readily to mind.
[31] Cases have recognised the right to be repaid the excess. In Bize v Dickason a broker paid the trustee in bankruptcy of an underwriter a debt of £1,356 and it was later found that the bankrupt owed him £661.28 In finding for the broker in the claim
to recover the overpayment, Lord Mansfield said:29
…the rule had always been, that if a man has actually paid what the law would not have compelled him to pay, but what in equity and conscience he ought, he cannot recover it back again in an action for money had and received. So where a man has paid a debt, which would otherwise have been barred by the Statute of Limitations; or a debt contracted during his infancy, which in justice he ought to discharge, though the law would not have compelled the payment, yet the money being paid, it will not oblige the payee to refund it. But where money is paid under a mistake, where there was no ground to claim in conscience, the party may recover it back again by this kind of action.
[32] In Re Cushla Ltd the debts of the company in liquidation included sums owing to the Commissioners of Inland Revenue and the Department of Health and
Social Security.30 The liquidator made claims on the Commissioners of Customs and
28 Bize v Dickason (1786) 1 TR 285, 99 ER 1097.
29 At 286-287.
30 Re Cushla Ltd [1979] 3 All ER 415 (Ch).
Excise for input tax for value added tax. Customs and Excise paid most of the claims, which were less than the debts to the Crown. Customs and Excise succeeded in a claim to recover the payment as money paid under a mistake, relying on the indivisibility of the Crown. Vinelott J added:31
I should add for completeness that if I had felt compelled to the conclusion that the Crown had no right, legal or equitable, to recover moneys mistakenly paid to the company, I would nonetheless have had jurisdiction to order, and would have ordered, the liquidator to return those moneys to the commissioners. No doubt the jurisdiction to give such a direction to the liquidator as an officer of the court, which was first defined in Ex parte James, is one to be applied only with the greatest caution. But a payment made in the circumstances in which this payment was made, and which has directly enriched the assets of the company, in my judgment falls clearly within that jurisdiction. It would be shocking to the sense of propriety of any fair minded man that the liquidator should retain these moneys for the benefit of the creditors generally.
[33] In Re Paddington Town Hall Centre Ltd (in liq) a bank was creditor of the company for loans for more than $70,000 but there was a smaller sum held in current accounts with the bank.32 At the liquidator’s request the bank paid the funds in the current accounts. It succeeded in its claim for recovery of those funds as money paid under a mistake of law relying on the principle in Ex parte James.
[34] In Strategic Finance Ltd (in rec and in liq) v Bridgman the Commissioner of Inland Revenue was a creditor of a company in liquidation for $3,625,493.51 for unpaid GST.33 By mistake the Inland Revenue paid a GST refund of $169,349.86 to the company while it was in liquidation. The Commissioner was held entitled to recover on the principle in Ex parte James.
[35] These cases involved the application of insolvency set-off, even if not all the judgments referred to it. In each of them the liquidator still held the funds. The claim of the overpaying creditor was recognised. It was entitled to recovery in full and was not required to share pari passu with unsecured creditors.
[36] The response to the possible answers I put in the mouth of the liquidator is
that the overpayer’s claim is essentially restitutionary. It is not based on any liability
31 Re Cushla Ltd, above n 30, at 423 (footnotes omitted).
32 Re Paddington Town Hall Centre Ltd (in liq) (1979) 41 FLR 239 (NSWSC).
33 Strategic Finance Ltd (in rec and in liq) v Bridgman [2013] NZCA 357, [2013] 3 NZLR 650.
of the company incurred before liquidation, but arises from the receipt during the liquidation of money to which neither the company nor the liquidator are entitled. Those funds cannot be used to increase the pool for pre-liquidation creditors.
[37] Unlike the cases discussed above, this case is not the basic model. It comes with extras:
(a) Hukatere was a corporate trustee which incurred its GST liabilities as a trustee, but was later removed.
(b) The Commissioner’s payments in September 2010 were after its
trusteeship came to an end.
(c) Mr Robertson no longer has most of the money. He paid it on at the request of the new trustee.
(d) He is no longer the liquidator of Hukatere.
Did a right to GST refunds vest in RVB Corporate Trustees Ltd under s 47 of the Trustee Act 1956?
[38] Mr Robertson’s case is that Hukatere’s trusteeship came to an end under the deed dated 29 March 2010 and under s 47 of the Trustee Act its rights to GST refunds vested automatically in RVB. The Commissioner does not accept that Hukatere was removed as trustee of the WBR Trust before it went into liquidation. The point is relevant to the vesting issue, as there are potentially different results according to the time the trusteeship ended. I deal with the factual issue first, then consider the possible outcomes if the trusteeship ended under the deed of 29 March or on liquidation on 14 April.
Can Mr Robertson rely on the deed of 29 March 2010 in this application?
[39] The Commissioner relies on circumstantial factors to challenge the removal of Hukatere on 29 March 2010. Mr Robertson’s first report as liquidator dated
22 April 2010 seems to suggest that Hukatere remained trustee at least up until
liquidation. It does not say that Hukatere was removed as trustee before liquidation. On 15 July 2010 Mr Robertson advised the Commissioner that the trusteeship ended on liquidation. The deed of 29 March 2010 did not come to light until much later, after new liquidators had been appointed, whereas Mr Robertson as original liquidator can be expected to have all relevant company records. As the trust deed does not make anyone an appointor, it is not clear that Mr Brown was entitled to exercise the power to remove a trustee.
[40] The deed has unusual features, as I noted in [10] above. The only parties are Mr Brown and the replacement trustee, RVB, another assetless corporate trustee of Mr Brown. Under the deed Mr Brown purports to exercise the powers of appointor under clause 8.00 of the trust deed to appoint RVB and to remove the existing trustee (which is not identified in the deed). Given Mr Brown’s control of Hukatere it is odd that there was not the usual deed of retirement of trustee with Hukatere as a party. The deed removing Hukatere as trustee does not provide any indemnity to it for debts incurred as trustee. There is no evidence that any lawyer was involved in preparing the deed.
[41] Mr Hucker submitted that the deed had to be accepted on its face, unless the Commissioner provided clear evidence to put the deed in question, and there was no such evidence here. I accept that in many summary judgement cases deeds are accepted without further question and without requiring further evidence in support of the deed. However, the Commissioner challenging the deed has done enough to show that in the circumstances of this case the time of Hukatere’s removal as trustee should be decided at trial. As the Court of Appeal held in Westpac Banking Corp v M M Kembla New Zealand Ltd, it is inappropriate to decide disputed factual matters
where they cannot be confidently concluded from affidavits.34 At trial
Mr Robertson may be able to show that the deed was made on 29 March 2010, that the removal of Hukatere was effective notwithstanding that the trust deed did not name an appointor and that the other irregularities can be explained away. But I
cannot decide that now on the current state of the evidence.
34 Above n 3, at [62].
[42] If Mr Robertson cannot prove at trial that Hukatere was replaced as trustee on
29 March 2010, there will be a question who, if anyone, became the trustee when Hukatere went into liquidation. That will be relevant to Mr Robertson’s defence, because he says that he was entitled to pay the GST refunds to RVB as the replacement trustee.
The effect of Hukatere’s trusteeship ending on liquidation
[43] If Hukatere remained trustee up until liquidation, the position is straightforward. Immediately before liquidation the company was indebted to the Commissioner for GST incurred as a trustee and it was entitled to refunds for other taxable periods when it was also carrying on a taxable activity as trustee of the same trust. Insolvency set-off under s 310 of the Companies Act took effect on liquidation. The requirement for mutuality is satisfied. The debts for the taxes and refunds are set-off to produce a net balance owing to the Commissioner which she may claim in the liquidation. With that the company’s claim to the refunds is extinguished. It therefore cannot be assigned and cannot be vested in a replacement trustee. When the Commissioner made the payments in September 2010, there was no refund due because of the set-off and no-one was entitled to receive a refund – not Hukatere, not Mr Robertson and not any replacement trustee. The Commissioner has a prima facie restitutionary cause of action for recovery of the payment.
The effect of Hukatere’s trusteeship ending under the deed of 29 March 2010
[44] Mr Robertson says however that Hukatere’s removal as trustee sixteen days before liquidation makes a difference. His case is that Hukatere’s rights to the refunds were assets of the trust which vested in RVB when Hukatere was removed as trustee. Hukatere remained indebted to the Commissioner for the unpaid GST but could not apply the refund credit against that liability because that asset no longer belonged to it. Insolvency set-off under s 310 was accordingly not available on liquidation as there was no off-setting credit available to reduce the debt. Admittedly Hukatere had its equitable lien over trust assets, which included the right to the refund, but in the circumstances of this case, that did not extend to retaining trust assets against the claim of the replacement trustee. Instead RVB was lawfully
entitled to receive the GST refund and Mr Robertson correctly paid the money to it when asked.
[45] Mr Robertson’s argument relies on the automatic vesting of assets in a new
trustee under s 47(1)(b) of the Trustee Act:
Vesting of trust property in new or continuing trustees
(1) Where by a deed a new trustee is appointed to perform any trust, then—
(a) if the deed contains a declaration by the appointor to the effect that any estate or interest in any land that is subject to the trust and is not under the Land Transfer Act 1952 or excluded from the operation of this section by subsection (4) thereof or in any chattel so subject, or the right to recover or receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become or are the trustees for performing the trust, the deed shall operate, without any conveyance or assignment, to vest in those persons as joint tenants and for the purposes of the trust the estate or interest or right to which the declaration relates; and
(b) if the deed is made after the commencement of this Act and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by the appointor extending to all the estates, interests, and rights with respect to which a declaration could have been made.
[46] In his submission the new trustee became the person to whom the refund was payable. The argument assumes that Hukatere’s tax debts are to be treated separately from the refund. As no set-offs under the tax legislation have been applied and none are available outside the legislation, Hukatere cannot require the tax refund to be paid to it after it is no longer trustee. Mr Robertson accepts that Hukatere may remain exposed to its tax debts to the Commissioner; that it has a right of indemnity from trust assets after it has been removed as trustee; and that the right of indemnity gives it an equitable lien. He says however that that has limited application in the circumstances of this case. The lien does not give a right to retain trust assets against an incoming trustee. It can be enforced only by judicial sale or appointment of a receiver, but does not give a right to possession of trust assets.
[47] In support Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd was cited.35 That was another case of an insolvent corporate trustee that went into liquidation. There the trust deed also provided for an appointor to appoint a new trustee and for the trusteeship to end automatically on liquidation. The appointor appointed a new trustee on the day the original trustee went into liquidation. The new trustee applied for an order that loans, which were the subject of proceedings
brought by the original trustee, had now vested in it. It gave undertakings not to compromise the loan proceedings and to pay the proceeds into a special account. Brereton J held that the loans were trust assets and that they had vested in the new trustee under the New South Wales equivalent of s 47 of the Trustee Act. It was entitled to be substituted as plaintiff in the proceedings on the loans. He decided that as a matter of right rather than discretion, but would have exercised any discretion in favour of the new trustee as he could see no prejudice to the old trustee (because of the undertaking) or to the defendants in the loan proceedings. The beneficiaries of the trust were likely to benefit as the new trustee would be better placed to run the proceedings than the liquidator of the former trustee.
[48] After a careful examination of the authorities he held that a former trustee’s equitable lien, a security interest arising by operation of law independently of any agreement, did not give the trustee the power to retain trust assets against a new trustee (as opposed to beneficiaries of the trust). Some of the cases he referred to recognised that a former trustee’s interests under its lien could be protected by
framing appropriate orders or by requiring undertakings.36 But that presupposes that
there is some relevant proceeding before the court, such as an application for vesting orders, which will allow such protections to be imposed. It assumes that the court may exercise discretionary powers in a timely way to protect the former trustee. Brereton J held however that, in his case, vesting in the new trustee occurred automatically on its appointment. That means that the opportunity to impose protections for the former trustee’s lien may be no more than fleeting. It requires the
former trustee to be alive to the need to uphold the lien and to apply to the court for
35 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344, (2008)74
NSWLR 550.
36 Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3
ACSR 183 (NSWSC) at 186; Hillig v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1371 at [18]; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 587.
relief if necessary. If vesting occurs automatically and does not turn on the exercise of the court’s discretion, it was only a matter of good fortune that undertakings were offered in Lemery.
[49] Trim Perfect Australia Pty Ltd v Albrook Constructions Pty Ltd shows one possible way round the problem.37 An insolvent corporate trustee went into liquidation. The main trust asset was a farm mortgaged to a bank for a debt for more than the value of the farm. The appointor under the trust deed appointed a new trustee. A few days later the former trustee entered into an agreement to sell the farm. There was no ground to take issue with the price and the terms of sale. Applying reasons similar to Brereton J’s in Lemery, Austin J held that the former trustee had no authority to sell the property, even though the purpose of the sale was
to pay debts incurred as trustee. Notwithstanding that, he made a retrospective order for sale, on the ground that such nunc pro tunc orders may be made to overcome procedural irregularities and difficulties when the parties’ substantive rights will not be disturbed. While that provided an appropriate outcome in that case, it may not always be available.
[50] If protecting the lien requires timely action by the former trustee, it was missing in this case. There is no evidence that Mr Brown as director of Hukatere, the former trustee, took any steps to ensure that its equitable lien was protected when he removed it as trustee. The deed removing Hukatere as trustee does not even provide any express indemnity by RVB in its favour. Hukatere has a right of indemnity in any case, but the departure from standard practice is significant. There is no evidence that Mr Robertson as liquidator of Hukatere did anything to enforce or protect its equitable lien. There are difficulties with retrospective orders, as it is arguable that substantive rights have changed in the meantime, given that the funds from the tax refunds have been dispersed.
[51] These difficulties suggest that care is required in applying arguments as to automatic vesting. A manoeuvre under which trust assets can be removed from an insolvent trustee while leaving the trustee exposed to creditors’ claims is not
attractive.
37 Trim Perfect Australia Pty Ltd v Albrook Constructions Pty Ltd [2006] NSWSC 153.
[52] There are limits to s 47. They include:
(a) Sometimes the nature of the trust asset requires additional steps to make it over to the new trustee, for example, a transfer of land under the Land Transfer Act 1952.
(b) The trustee’s right of indemnity and the equitable lien are not trust
assets. The lien is property the trustee retains after retirement.
(c) The former trustee’s indemnity powers, including recourse to trust assets vested in the new trustee, apply to established liabilities he has incurred, but his removal as trustee does not mean that he cannot resist the claims of creditors on any grounds that were available before. He is not divested of his defences.
[53] So far it has been assumed that the right to a GST refund is capable of being transferred automatically on the appointment of a new trustee in the same way as most other things in action. That requires examination.
[54] It needs to be noted that it is not correct to treat Hukatere’s tax dealings with the Commissioner as a running account, a series of credits and debits which gives rise to a single debt for the balance.38 If that were done, the credit for the refund would not be treated as an asset distinct from the other credits and debits which produce the net balance. The tax legislation does not however allow tax debts and credits to be combined in that way. Each GST tax or refund for each taxable period is distinct and may not be applied against other taxes or refunds except where the legislation says so expressly.
[55] Under s 23(1) of the Goods and Services Tax Act, tax that has been calculated under s 20 on the net difference between inputs and outputs for the taxable period is payable is a distinct debt:
Every registered person, for each taxable period, shall, not later than the last day allowed under this Act for furnishing a return for that taxable period, pay
38 Cottam v Partridge (1842) 4 Man & G 271 at 293-4, 134 ER 111 at 120.
to the Commissioner the tax payable for that period as calculated pursuant to section 20.
That distinct debt is independent of taxes payable for other taxable periods and of any refunds.
[56] That is reinforced by provisions for set-off. Set-off is possible only for independent debts or liabilities. It does not apply in a running account, where there is a single debt.39 Relevant set-off provisions include:
(a) Section 46(6) of the Goods and Services Tax Act under which the Commissioner may apply refunds to other taxes payable by the taxpayer;
(b)Section 46(7) under which the Commissioner may apply a refund otherwise payable to a special agent under s 58 towards tax owing by the incapacitated person;
(c) Section 173L of the Tax Administration Act under which a taxpayer may request excess tax to be transferred to another period or another tax. The transfer only takes place when the Commissioner accedes to the request.40 The taxpayer cannot make the set-off unilaterally.
Importantly these set-offs are not self-executing but apply only when the power of set-off is invoked. They underline the independence of each tax payable for each taxable period.
[57] It is also important to understand that the taxes cannot be set-off against each other at common law or under the Statutes of Set-Off.41 That is because the only set-
off powers are those in the tax legislation. They need to be invoked and there is no
39 Rory Derham Derham on the Law of Set-Off (4th ed, Oxford University Press, Oxford, 2010)
at [1.01].
40 Commissioner of Inland Revenue v Capucci Knitwear Ltd (1989) 11 NZTC 6,112 (HC);
Commissioner of Inland Revenue v Carswell Investment Co Ltd (2002) 20 NZTC 17,523 (HC). The second case was a liquidation application. With respect, the availability of insolvency set- off under s 310 of the Companies Act may have been overlooked in that decision – compare Commissioner of Inland Revenue v The Fishing Company Ltd above n 15.
41 (1728) 2 Geo 2 c 22, and (1734) 8 Geo c 24, in force in New Zealand – Imperial Laws
Application Act 1988, s 3.
evidence that either the Commissioner or Hukatere exercised them before Hukatere was removed as trustee. For that matter there was no proceeding in which procedural set off could be applied.
[58] Instead the answer to Mr Robertson’s argument is that automatic vesting under s 47 of the Trustee Act did not occur because it was precluded by the tax legislation. Claims to tax refunds are different from other trust assets. They are subject to a different regime. Part 10B, Transfers of Excess Tax, of the Tax Administration Act is special legislation that deals with transfer of a particular form of property – excess tax paid to the Commissioner. Its transfer provisions apply in place of general legislation as to the transfer of property, such as s 47 of the Trustee
Act.42
[59] The relevant provisions in Part 10B of the Tax Administration Act include ss 173K, 173L, 173M and the definitions of “taxpayer” and “tax position” in s 3. Under these provisions the Commissioner transfers any excess, not a taxpayer. Section 173K(1)(b) gives the Commissioner that power. While a taxpayer can request a transfer, that is not a demand. She cannot be compelled, but no doubt in considering a request for a transfer she will bear in mind her responsibility to protect
the integrity of the tax system.43
[60] The taxpayer who has paid the excess tax under s 173K(1)(a) may request the transfer. A new trustee who has replaced a former trustee that has paid excess tax is not a taxpayer who may request a transfer. The new trustee has not paid the excess tax. The right to request a transfer is not a property right that passes on a change of trustee. The former trustee retains that right to ensure that it can manage its tax responsibilities. It goes to the trustee’s ability to resist a creditor’s claims. Because a trustee remains liable for debts incurred during its trusteeship, on being replaced as trustee it does not lose its powers to take all available steps to reduce its liability to
its creditor.
42 See the principles applied in Stewart v Grey County Council [1978] 2 NZLR 577 (CA) at 583; and Volcanic Investments Ltd v Dempsey & Woods Civil Contractors Ltd (2005) 11 TCLR 256 (HC) at [31].
43 Tax Administration Act, s 6.
[61] In theory Hukatere might have requested a transfer up until it went into liquidation.44 It could not have requested a transfer after it went into liquidation because insolvency set-off under s 310 of the Companies Act took effect and the excess was extinguished. It seems unlikely that the Commissioner would have agreed to any transfer in view of Hukatere’s other GST liabilities. There is no evidence that Hukatere did request a transfer of excess tax or that the Commissioner
transferred any GST refund in response to a request. In the absence of any transfer the GST refunds continued to be assets of Hukatere which were extinguished under insolvency set-off on liquidation. This means that even if Hukatere was effectively removed as trustee on 29 March, it is still arguable for the Commissioner that RVB was not entitled to any GST refund.
[62] For fullness I add that any transfer to RVB at Hukatere’s request would be under s 173M, a transfer to another taxpayer. Section 173L applies only to transfers to other periods or taxes of the same taxpayer. Hukatere is liable for GST only while it is trustee, including any period before the Commissioner is notified of its removal under s 57(3B) of the Goods and Services Tax Act. RVB is liable for GST incurred during a different period – while it is a trustee. As they must pay different taxes for different periods, they cannot be the same taxpayer. The fact that they were members of the same unincorporated body under s 57 (but at different times) does not make them the same person. Under s 57(3) they have distinct liabilities. Similarly Inland Revenue’s use of a number to identify the trust for GST purposes does not merge the trustees into a single taxpaying entity.
[63] The result is that it does not matter whether Hukatere was removed as trustee on 29 March or 14 April. In either case it is arguable for the Commissioner that Hukatere continued to hold the right to the tax refunds up to liquidation, when insolvency set-off under s 310 of the Companies Act took effect and the right to the refunds was extinguished. There were no rights to vest in a replacement trustee. If Hukatere was removed on liquidation, there is an additional problem for Mr Robertson in justifying his payment to RVB because there is no evidence that it was appointed after liquidation.
[64] Both sides relied on the Commissioner’s power of set-off under s 46(6) of Goods and Services Tax Act but for different purposes. Section 46 deals with payments by the Commissioner to the taxpayer, such as under s 20(5) when inputs exceed outputs. Subsection (6) allows the Commissioner to apply the refund to other tax payable by the taxpayer. The version in force up to 30 September 2010 said:
If, but for this section, a registered person would be entitled to an amount as a refund under …s 20(5)…, the Commissioner may apply the amount, … in such order or manner as the Commissioner may determine, in payment of –
(a) tax that is payable by the person:
(b) an amount that is payable by the person under another Inland
Revenue Act.
[65] The Commissioner says that her payments in September 2010 were mistakes because she ought to have applied the set-off under s 46(6). Mr Robertson takes the point that the power was not exercised and as a result RVB became entitled to the refund as the replacement trustee. I do not need to repeat my reasons for rejecting that argument. The point I make here is that after liquidation the Commissioner’s set-off power became irrelevant. Insolvency set-off had already taken effect on liquidation and any separate debts for the GST refunds had been extinguished. There is also no point in referring to any exercise or non-exercise of the power before liquidation because the refunds were still under investigation and reassessment under s 46 of the Goods and Services Tax Act and Part 4A of the Tax Administration Act. Any right to the refund had not been established.
[66] The payments of September 2010 were for debts that the Commissioner did not owe. The preferable view of the Inland Revenue’s mistake is that it did not appreciate the effect of the insolvency set-off. Mr Robertson equally cannot maintain that there was any entitlement to those payments, because there were no debts to be satisfied.
[67] The Commissioner made the payments of 15 and 20 September by cheque, but the cheques have not yet been put in evidence. The Commissioner’s stop payment notice identifies the payee as WBR Trust. The trust, not any trustee, was registered as an unincorporated person under the GST Act. On that evidence WBR Trust was named as the payee. A trust is not however a person and therefore cannot receive a payment. A trustee is entitled to receive a cheque for a trust and present it for payment. But which trustee? Mr Robertson’s case is that these cheques were for refunds payable to RVB as the right to the refund had vested in it. But that is not correct for the reasons I have given above. The Commissioner had not transferred any right to the refund to another taxpayer. Instead the cheques were for the taxpayer who had made the returns for which the refunds were claimed – Hukatere. As Hukatere’s liquidator Mr Robertson was entitled to receive the cheques on its behalf and to pay the proceeds into his trust account in the same way as he would do for payments made to any company whose liquidation he was running. That does not mean that he received the payments personally. He received them on behalf of
Hukatere.45 This finding is provisional because the cheques have not been put in
evidence yet. They might tell a different story.
The Commissioner’s cause of action for breach of duty and misapplication of assets
[68] The Commissioner sues Mr Robertson under s 301 of the Companies Act for breach of duty and misapplication of assets as liquidator:
[119] The matter in issue here is the Commissioner’s power to amend a registered person’s self-assessed GST returns. The charge for the tax is imposed by the statute.80 The taxpayer and the Commissioner quantify the correct amount of any liability between them. That is essentially an administrative process. A GST assessment is a disputable decision.81 It is subject to the conclusive presumption under s 109 of the Tax Administration Act that it is correct and may not be disputed in court proceedings (except under Parts 8 and 8A). Under s 113 the Commissioner
may amend assessments:
77 McPhail v Durbridge Developments Ltd (in liq), above n 74.
78 For examples: Kiwi Marketing v Prima Technologies Ltd (in liq) HC Hamilton CIV-2007-419-
1804, 15 May 2008; Downer Construction (NZ) Ltd v One Hobson Street Ltd (in liq) HC Auckland CIV-2007-404-2374, 3 August 2007.
79 Companies Act, s 260(2), Schedule 6, cl (a).
80 See generally Part 3 of the Goods and Services Tax Act 1985.
81 See the definition of “disputable decision” in s 3 of the Tax Administration Act 1994.
Commissioner may at any time amend assessments
(1) Subject to sections 89N and 113D, the Commissioner may from time to time, and at any time, amend an assessment as the Commissioner thinks necessary in order to ensure its correctness, notwithstanding that tax already assessed may have been paid.
(2) If any such amendment has the effect of imposing any fresh liability or increasing any existing liability, notice of it shall be given by the Commissioner to the taxpayer affected.
[120] The reference to s 89N points to the disputes procedures under Part 4A. Section 89A(1), the first section in that part, says:
Purpose of this Part
(1) The purpose of this Part is to establish procedures that will—
(a) improve the accuracy of disputable decisions made by the Commissioner under certain of the Inland Revenue Acts; and
(b) reduce the likelihood of disputes arising between the Commissioner and taxpayers by encouraging open and full communication—
(i) to the Commissioner, of all information necessary for making accurate disputable decisions; and
(ii) to the taxpayers, of the basis for disputable decisions to be made by the Commissioner; and
(c) promote the early identification of the basis for any dispute concerning a disputable decision; and
(d) promote the prompt and efficient resolution of any dispute concerning a disputable decision by requiring the issues and evidence to be considered by the Commissioner and a disputant before the disputant commences proceedings.
[121] The Part provides detailed procedures under which the Commissioner may reassess a registered person’s GST returns (as well as taxes levied under other Acts). Those procedures include giving a notice of proposed adjustment to the taxpayer, who may reply with a response notice, the issue of a disclosure notice and a statement of position, and a statement of position in response by the taxpayer. Along the way time limits for responses must be met. Although it is not provided in the Tax Administration Act, as a matter of practice unresolved disputes are referred to the Inland Revenue’s disputes review unit. Again as a matter of practice rather than of
law, the Commissioner accepts the decisions of the unit as binding on her. The taxpayer is not bound by the unit’s decisions. Instead if there are still unresolved differences it is entitled to begin a challenge proceeding under Part 8A of the Tax Administration Act in the Taxation Review Authority or this court.82
[122] The processes under Part 4A are essentially administrative means for resolving tax disputes by set procedures. The practice of submitting a dispute to the disputes review unit does not change the procedures into a legal proceeding – only the Commissioner can be bound, not the taxpayer. The stage of legal proceedings is reached only at the point where challenge proceedings would be taken in either the Taxation Review Authority or this court if the company were not in liquidation.
[123] In this case there was no legal proceeding under s 248(1)(c) of the Companies Act after Hukatere went into liquidation. The Commissioner’s statement of position of 25 June 2010 was part of an administrative process to resolve a tax dispute without resort to legal proceedings. The dispute was resolved when Mr Robertson did not file a statement of position within the required response period.
[124] Accordingly, when the Commissioner continued the review of the company’s GST returns, she was entitled to do so using the administrative procedures in Part 4A of the Tax Administration Act. The liquidator had the choice of responding to them if he wished.
[125] As part of his argument Mr Hucker referred to decisions that a statutory demand under s 289 of the Companies Act may be a document in a legal proceeding.83 Those were decisions as to whether statutory demands are to be served under s 387 or s 388 of the Companies Act. They are not relevant to the present issue. They do not show that notices by the Commissioner under Part 4A of the Tax
Administration Act are part of legal proceedings barred under s 248.
82 Tax Administration Act 1994, s 138B.
83 Re WSA (NZ) Ltd (in rec and in liq)(1999) 8 NZCLC 262,064 (HC); Delta Installations Ltd v
Hamilton Joinery Ltd (2003) 16 PRNZ 814 (HC).
Result
[126] For the above reasons I am not satisfied that all of the Commissioner’s causes
of action will fail. The case will have to go to a full hearing.
[127] The Commissioner should have costs on the application. While it is the general practice to reserve costs on a plaintiff ’s unsuccessful summary judgment application,84 that is not necessarily the case with a defendant’s summary judgment application. The court is reluctant to order costs against an unsuccessful plaintiff because of the difficulty in assessing the ultimate merits of the case at the summary judgment stage. In some cases, defences raised at the summary judgment may be
shown later to have no foundation. In such cases it would be wrong to award the defendant costs on dismissing the summary judgment application. On the other hand, a defendant is usually able to assess the strength of its case before applying for summary judgment. The usual consequence of costs following the event may apply. That is the case here.
[128] Counsel are to confer as to costs, but I raise one matter. While it is normal to order 2B costs, this may be a case for a departure. In particular, given the obvious efforts by both sides, more than the normal time must have gone into preparing written submissions.
[129] As an afternote I record Mr Hucker’s submission that my decision in Official Assignee v Menzies was in error.85 I have not had to consider that case for this decision. I again leave my reconsideration of that for another day.86
[130] I make these orders:
(a) I dismiss the summary judgment application.
84 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
85 Official Assignee v Menzies (2011) 3 NZTR 21-001 (HC)..
86 S and S v XYZ Ltd, above n 11, at [133](d).
(b)I award the Commissioner costs on the application. If counsel cannot agree, written memoranda may be filed and I will decide costs on the papers.
(c) The Registrar is to arrange a case management conference for directions through to hearing.
………………………............
Associate Judge R M Bell
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