Commissioner of Inland Revenue v Shirley HC Auckland CIV 2010-404-2135

[2010] NZHC 1541

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-002135

IN THE MATTER OF     the Insolvency Act 2006

AND

IN THE MATTER OF     THE BANKRUPTCY OF RICHARD JOHN SHIRLEY

BETWEEN  COMMISSIONER OF INLAND REVENUE

Judgement Creditor

ANDRICHARD JOHN SHIRLEY Judgment Debtor

Hearing:         31 August 2010

Appearances: S J Hague for judgment creditor

Judgment debtor in person

Judgment:      31 August 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTT

Solicitors:

Inland Revenue Department, PO Box 76-198, Manukau 2241

Richard John Shirley, 2/27 Headcorn Place, Botany Downs, Manukau 2010

COMMISSIONER OF INLAND REVENUE V  SHIRLEY HC AK CIV 2010-404-002135  31 August 2010

[1]      The Commissioner of Inland Revenue has applied to adjudicate Richard John Shirley bankrupt.   The application is made on the basis of an unmet bankruptcy notice, seeking payment of a judgment debt.   The judgment was entered in the Manukau District Court on 15 July 2009.

[2]      The bankruptcy notice was served on Mr Shirley on 19 April 2010.  He did not take any steps to set it aside, but he did file in this Court a document described as a notice of defence to the bankruptcy notice.  In that document he said that he would file a defence to the proceeding, on the basis that there was already litigation on this matter in the District Court at Manukau, due for hearing on 17 May 2010.  That of course did not constitute an application to set aside the bankruptcy notice.

[3]      The  present  application  was  filed  on  17  June  2010.    It  was  served  on

Mr Shirley on 6 July 2010.  It had a first hearing date of 3 August 2010.

[4]      When  the  application  came  before  the  Court  on  3  August  2010  it  was adjourned  to  allow  the  Commissioner  opportunity  to  investigate  a  possible psychiatric disability on the part of Mr Shirley, and also to allow Mr Shirley to put evidence before the Court of the matters which he contends gave him a basis for a defence.

[5]      Subsequently Mr Shirley filed an affidavit setting out a history of his dispute with the Commissioner over his tax affairs, together with two further brief affidavits confirming some of that background.

[6]      The  Commissioner  has  since  filed  an  affidavit  in  reply  by  his  National

Collections Enforcement Officer, Ms Baines.

[7]      The issue for the Court is whether any of the matters raised by this further evidence from Mr Shirley establishes any basis for a valid opposition to the present application for adjudication.

[8]      Before turning to that, I should also note the other aspect which underlay the adjournment, namely Mr Shirley’s mental capacity.   Mr Shirley has provided a medical certificate dated 19 August 2010 which refers to mental issues associated with depression.   It was the view of his doctor that this prevented him from participating in Court proceedings.   I am satisfied from that certificate, and from other material produced in Mr Shirley’s affidavit, that he has had long running mental difficulties, associated with disputes within his family and with his former employment in a family company.  I also have no doubt that the very lengthy process of dispute with the Commissioner has been a matter of difficulty for him.

[9]      However, I do not regard the certificate or this evidence as establishing an inability to understand his legal rights, or to take steps to obtain advice about them, or to enlist the support of others in pursuing them.   That might have been the position, on an occasional basis, over the period of his dispute with the Commissioner,  but  the  evidence  goes  nowhere  near  establishing  that  it  is  a permanent condition applying over that time.  This is supported by my view of Mr Shirley’s condition today.  He has been able to argue forcefully, and clearly has an understanding of the general issues in this case and the points that he wishes to put before the Court.

[10]     Turning to the substantive aspects of the application, the Commissioner’s judgment debt represents a variety of tax obligations, some of which run back as far as 1993.   Mr Shirley has raised a number of challenges to his liability for these obligations.  Included in them is a contest over some PAYE obligations.  Mr Shirley initially took the position that he could not be liable because the obligation in fact lay on his employer.  When counsel for the Commissioner made it clear (and produced documents which satisfied me on the point) that the obligation is in fact an employer obligation relating to time when Mr Shirley was running a taxi business, Mr Shirley sought to answer that by producing a document which shows that he was entitled to a tax credit in later years.  I took from this that Mr Shirley wished me to infer that that was the overall tax position at that time, leading to a submission that the PAYE obligations had in fact been paid.

[11]     The matters that have been advanced today, and raised in the affidavits which Mr Shirley has filed, are all matters which he has had opportunity to advance under the statutory challenge procedures of the Tax Administration Act 1994.  He has not done so, and is now well out of time to bring such a challenge.

[12]     It is also relevant that when the Commissioner sought judgment for these debts, Mr Shirley initially defended that claim.  As I understand it most, if not all, of the points he is now making were advanced at that time, but rejected by the Court because he had not done so under the statutory process for challenge.

[13]     Mr Shirley has challenged the proposition that he was given opportunity to advance all matters in the District Court.  I am not in a position to judge whether or not that is so.  I can simply note the evidence before the Court that his defence to the Commissioner’s claim was struck out (presumably on the basis that he was no longer in a position to challenge assessments having regard to the provisions of Part 8A of the Tax Administration Act 1994) and a subsequent attempt to bring the matter back before the Court was rejected as recently as 17 June 2010.  It is also significant that Mr Shirley has neither appealed against those decisions, nor sought to take judicial review proceedings in this Court on the Commissioner’s determinations.

[14]     I have spent some time on this matter today to try to assess whether or not there could be any basis for Mr Shirley still to challenge the Commissioner’s assessments.  The only theoretical basis for doing so (in light of the provisions of Part 8A) would be to apply by way of judicial review for those determinations to be quashed.   There are two obstacles in Mr Shirley’s way to this process.   First, the

Court of Appeal has recently [1] has ruled that the proper approach for Mr Shirley to

have taken was to have sought interim relief under s 8 of the Judicature Amendment Act 1972, rather than argue that such a claim for judicial review might provide a defence to bankruptcy proceedings.[2]      The second aspect is that Mr Shirley would have  to  satisfy  a  very  high  test  (referred  to  as  “conscious  maladministration”

affecting the assessments).  I am satisfied from the matters that have been traversed today that there is simply no prospect of him being able to meet that test.

[1] Tannadyce Investments Ltd v Commissioner of Inland Revenue 2010 NZCA 233

[2] At [44].

[15]     The following passage from the Court of Appeal’s decision in Tannadyce is also apposite:

[40]      We would, of course, be concerned if the effect of this decision was to leave a taxpayer with no way of challenging the alleged improprieties in the actions of the IRD officers in the process leading up to the assessments under challenge.  But as has been made clear in numerous decisions of this Court and confirmed in Westpac, the challenge process mandated by Part 8A of the TAA allows for such matters to be  raised. If a taxpayer chooses not to engage   in   the   Part   8A   process   (as   Tannadyce   did   in   this   case, notwithstanding reminders from the IRD as to the availability of the process and the deadlines for activating the process), it cannot complain when the alternative but extremely limited process of judicial review is unavailable to it.

[16]   Weighing all of these circumstances I have to assess whether the Commissioner’s prima facie entitlement to adjudicate Mr Shirley bankrupt could be outweighed by some factor which makes it plainly unjust for that to occur.  I am not persuaded that that is the case.

[17]     Mr Shirley has said to me today that he would be in a position to pay this debt out of trust funds, if I was to form the view that he had no valid defence.  On further questioning he has acknowledged that the trustees of the particular trust do not agree to release of the necessary money.  It is not for me to explore the reasons for that, or whether Mr Shirley may have a valid complaint about that (in other words, about the actions of the other trustees).  What is clear to me is that that money is not currently available, and there is no assurance that it could be become available at least in the foreseeable future.

[18]     In all of the circumstances, I am satisfied that the Commissioner has met all of the pre-requisites for an order for adjudication, and that there are no circumstances which would make it unjust for me to make an order today.   I make an order, accordingly, adjudicating Mr Shirley bankrupt.  This order is made at 11:48am.

[19]     I also make an order that the Commissioner is entitled to costs on a 2B basis together disbursements as fixed by the Registrar.

Associate Judge Abbott