Faloon v Commissioner of Inland Revenue
[2016] NZCA 537
•11 November 2016 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA208/2016 [2016] NZCA 537 |
| BETWEEN | CLARENCE JOHN FALOON |
| AND | COMMISSIONER OF INLAND REVENUE |
| Hearing: | 31 October 2016 |
Court: | Randerson, Cooper and Winkelmann JJ |
Counsel: | Appellant in person |
Judgment: | 11 November 2016 at 11.30 am |
JUDGMENT OF THE COURT
AThe application for orders extending time for allocating a hearing and filing the case on appeal is declined.
BThe applicant must pay the respondent costs for a standard application for leave to appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Winkelmann J)
Mr Faloon has appealed a judgment of Associate Judge Bell adjudicating him bankrupt.[1] He now applies for orders extending time for allocating a hearing and filing the case on appeal.[2] Unless time is extended, Mr Faloon’s appeal will be treated as abandoned.[3]
Background
[1]Commissioner of Inland Revenue v Faloon [2016] NZHC 760 [Bankruptcy judgment] at [50].
[2]Court of Appeal (Civil) Rules 2005, r 43(2)(a).
[3]Rule 43(1). Mr Faloon also initially sought an order deferring the due date for payment of security for costs fixed on this appeal. However, that issue has been determined by Kós J who declined an application for review of the Deputy Registrar’s decision not to dispense with, reduce or defer payment of security for costs: see Faloon v Commissioner of Inland Revenue [2016] NZCA 344.
Mr Faloon was adjudicated bankrupt on 14 April 2016 by Associate Judge Bell. The debts the subject of the bankruptcy were costs orders made in proceedings pursued by Mr Faloon against the Commissioner of Inland Revenue.[4]
[4]See Faloon v Commissioner of Inland Revenue [2013] NZHC 2643, (2013) 26 NZTC 21-061; Faloon v Commissioner of Inland Revenue [2014] NZCA 292, (2014) 26 NZTC 21-078; and Faloon v Commissioner of Inland Revenue [2013] NZHC 2912. The fourth costs decision, as recorded by Associate Judge Bell, was made by Goddard J on 29 July 2014.
In bankrupting Mr Faloon the Judge narrated, as background to the bankruptcy proceedings, litigation initiated by Mr Faloon stretching back over two decades which is linked, as we explain, to Mr Faloon’s litigation with the Commissioner in which the costs orders the subject of the bankruptcy proceeding were made.[5]
[5]Bankruptcy judgment, above n 1, at [13].
The Judge adopted the following summary of that background litigation set out in previous judgments of Asher and Gendall JJ:[6]
[6]At [14] citing Faloon v Commissioner of Inland Revenue (2005) 22 NZTC 19,653 (HC) per Asher J.
[14] Much of Mr Faloon’s litigation goes back to events many years ago. There was first his grievance over the diversion of the Kawau Stream on land near the Palmerston North airport in the 1970s. A second matter is the taking of land by the Crown for the Palmerston North airport in the 1990s. In Faloon v Commissioner of Inland Revenue, Asher J set out at paragraph [4] a summary of background events given by Gendall J in Faloon v Attorney-General:[7]
[7]Faloon v Attorney-General HC Wellington CP310/99, 5 October 2000 per Gendall J.
[4] The factual and procedural background leading to these proceedings is complex. I use as a summary of the background events that of Gendall J in CP310/99, which I have referred to above. He said at paras [9]–[14] of his judgment, (also relied on by Elias CJ in her judgment in Faloon v C of IR (2002) 20 NZTC 17,618):
[9] The relevant facts have their origin in two events. The first was the carrying out of a piped diversion of a stream, (the Kawau Stream) which diversion ran across the land owned by Trade Lines Limited pursuant to an arrangement between Mr Faloon’s father now deceased, and the Palmerston North City Council. Trade Lines Limited was a Faloon family company. Secondly, there was a taking of a portion of land owned by Trade Lines Limited by the Crown for the purposes of the Palmerston North Airport. At all material times the land was owned by the company and the Crown paid $80,000 to it on account of compensation under the Public Works Act 1981, after the land was taken by proclamation in December 1993. Trade Lines Limited is in liquidation. A claim for further compensation, over and above the $80,000, by the company, remains unresolved but is being pursued by the liquidators of Trade Lines.
[10] An issue arose in relation to the diversion of the stream, which was a dispute over payment for work and designs relating to the diversion, and possible contractual arrangements between Mr Faloon’s father and the Palmerston North City Council.
[11] Trade Lines Limited, however, had gone into liquidation and the liquidators wished to sell the retained piece of land. This led to the lodging of a number of caveats by Mr Faloon and his sister and also by Mr Faloon’s wife. They sought to prevent the sale. Caveats were also lodged in respect of the airport land which was said to protect an “easement in gross” over such airport land, but was, it seems, really no more than a fiction; see the decision of Ellis J in Faloon and Piesse v District Land Registrar [1997] 3 NZLR 498. But Trade Lines Limited had purported to create, in 1993, in favour of the other Faloon family company, Central Equipment what was said was a “drainage easement in gross” so as to endeavour to provide some platform to pursue a claim in respect of the stream diversion.
[12] Mr Faloon’s father had died in 1977 and the Public Trustee were Executors of his estate with Mr Faloon’s mother having a life interest, and he and his sister being residuary beneficiaries. The caveat in respect of the airport land was discharged, Ellis J holding that Mr Faloon, Central Equipment and his sister did not have a caveatable interest. The struggle to prevent liquidators selling the larger portion of land resulted in decisions in this Court on 1 October 1996 (Goddard J), 27 April 1997 (Neazor J), 19 May 1997 (myself) and 26 May 1997 (McGechan J). Each decision was to the effect that there was no caveatable interest held by Mr Faloon or his sister, in their own right, nor as residuary beneficiaries in their father’s estate, because they had no interest in the land. The true position was the land had been owned by Trade Lines and vested in the liquidators of that company.
[13] Although there was an appeal to the Court of Appeal lodged in respect of the decision of McGechan J a stay was not sought to prevent registration of the transfer of the residue of the land to the bona fide purchaser. This has proceeded. The appeal has not been brought on for hearing. Four of the entries on the Certificate of Title leading to the registration of that transfer are among those challenged by Mr Faloon in the present proceeding.
[14] When the purchaser of the residue of the land from the liquidators proceeded to subdivide it, they found that as between Trade Lines and Central Equipment the “easement in gross” was registered by the Faloon interests. It hindered subdivision. Application was made to the Court to extinguish the easement and this was the subject of the judgments of Heron J of 18 May 1998 and Neazor J of 29 June 1998. As a consequence the easement was extinguished. I respectfully conclude that both Judges were correct in their reasoning. Although Mr Faloon and his interests, called their creation an “easement in gross” it really was no more than a device entered into by Mr Faloon, acting through the two companies, in an endeavour to create something which in fact and in law could not exist. Central Equipment Company did not own any land which adjoined that of the grantor of the “easement”, so [as] to be a “dominant tenement”. But an easement in gross does not require a dominant tenement. Yet there has to be a servient tenement and also the right claimed, or given by the easement must be capable of forming the subject matter of a grant. So, in this case, despite it being claimed that Trade Lines Limited was the servient tenement, in truth it did not nor could not accommodate rights of others such as Central Equipment Company, independent of land ownership because such related only to the receipt of stormwater and drainage flowing in the [Kawau] Stream watercourse. The engineers, surveyors and planners who prepared the plan, when reporting to Mr Faloon’s sister on 28 June 1993 specifically stated that:
“we consider the granting of an easement in favour of another company, owned by yourselves, somewhat unusual.”
[5] Gendall J also had this to say further about the “easement in gross”:
[15]I agree that the “easement in gross” was properly extinguished and whether there was a proper basis for it to have been created, which is doubtful in any event, it was extinguished by order of the Court and consequently such order was registered.
We interpolate here to note that Mr Faloon does not accept the land was owned beneficially by Trade Lines Ltd. He says rather it was held on a resulting trust for Mr Faloon’s father and mother and, as is apparent from the above summary, he has claimed an interest in the land — a claim which has been rejected in proceedings involving Mr Faloon.
The litigation summarised in the above passage relates to the stream diversion. As noted, there was also an issue regarding the taking of land in the 1990s. Mr Faloon alleged that the Crown’s taking of land belonging to Trade Lines Ltd under the Public Works Act for the Palmerston North airport was invalid. He also contends that no compensation was paid in respect of that land although there is reference in some decisions to $80,000 compensation having been paid.[8] We understand Mr Faloon’s true complaint in this regard to be that the compensation paid was inadequate.
[8]See for example Faloon v Attorney-General, above n 7, at [9].
These two principal grievances relating to the Kawau Stream and the land acquisition have resulted in a multiplicity of litigation in which, as Associate Judge Bell observed, Mr Faloon has had a consistent lack of success.[9]
[9]Bankruptcy judgment, above n 1, at [17].
The nexus of all of this to proceedings involving the Commissioner of Inland Revenue was described, at least in part, in a decision of Associate Judge Christiansen as follows:[10]
In recent times Mr Faloon has endeavoured to file accounts with the Inland Revenue Department wherein he has claimed income receivable upon that sum he considers was payable by way of compensation at the time land was compulsorily acquired from Trade Lines for the purpose of an extension to the Palmerston North airport. He considers that the sum actually paid at that time neglected to take into account other factors for which compensation ought to have been paid including a sum of $432,554 for ‘noise pollution’. The ultimate purpose of this exercise is unclear. I assume if Mr Faloon can obtain the Commissioner’s acceptance of a claim that income, in the form of accumulated unpaid interest, has continued to accrue to the sum of more than $11,000,000 now identified by Mr Faloon, then that may form some basis upon which he can pursue a new claim for further compensation.
[10]Faloon v Commissioner of Inland Revenue (2011) 25 NZTC ¶20-097 (HC) at [11].
Mr Faloon has five proceedings now pending in the High Court at Wellington. That litigation was summarised by Associate Judge Bell as follows:[11]
Mr Faloon says that he presently has five proceedings now pending in the High Court at Wellington. In one of them he is suing Palmerston North Airport Ltd. Three of them seem to involve the Commissioner of Inland Revenue; two are appeals from decision of the Taxation Review Authority. In another he is appealing against a decision of the Commissioner of Patents. That relates to inventions apparently developed by his late father and Mr Faloon.
[11]Bankruptcy judgment, above n 1, at [18].
On 11 May 2016 Mr Faloon filed a notice of appeal in this Court in respect of the decision bankrupting him. He then filed an application dated 2 June 2016 to dispense with, reduce or defer the payment of security for costs. That application was dismissed by the Deputy Registrar. Mr Faloon’s application to review the Deputy Registrar’s decision was declined by Kós J on 20 July 2016 and the Judge ordered that security was to be paid by 17 August 2016.[12] Mr Faloon as not paid that security to date.
[12]Faloon v Commissioner of Inland Revenue, above n 3, at [14].
In July 2016 Mr Faloon filed an interlocutory application in the High Court seeking orders under s 416 of the Insolvency Act 2006 suspending his adjudication until the bankruptcy appeal had been decided. His principal ground for seeking the suspension was to enable him to carry on his five proceedings in the High Court at Wellington. The Official Assignee proposed that until resolution of this appeal the High Court proceedings should be put on hold. Mr Faloon opposed this course as he wished to continue to pursue actively his claims. Associate Judge Bell was satisfied that the Official Assignee’s proposal was the appropriate one and that the adjudication of bankruptcy should not be suspended to give Mr Faloon a free hand to conduct the litigation.[13]
[13]Faloon v Commissioner of Inland Revenue [2016] NZHC 2063 at [21] and [28].
In another appeal, Mr Faloon has appealed Associate Judge Bell’s refusal to suspend the bankruptcy pending the outcome of this appeal.[14]
[14]CA450/2016.
That is, in broad-brush terms, the procedural background to the present application for an extension of time.
Principles to be applied on this application
In Schmidt v Ebada Property Investments Ltd this Court reaffirmed the philosophy behind r 43 of the Court of Appeal (Civil) Rules 2005 — that once a matter has been the subject of a determination in the High Court, any party wishing to challenge that determination by an appeal to the Court must do so expeditiously or forfeit the right to pursue the appeal.[15] Once the time period in r 43 has expired the appellant is then in a position where, instead of being able to appeal as of right, he or she “requires the exercise by this Court of a positive discretion” to extend time for filing the case on appeal or applying for a hearing date.[16]
[15]Schmidt v Ebada Property Investments Ltd [2012] NZCA 452 at [6].
[16]Russell v Commissioner of Inland Revenue (2006) 22 NZTC 19,807 (CA) at [10].
Relevant factors in the exercise of that discretion include the reason the appeal has not been prosecuted diligently, the merits of the appeal and the granting of some latitude in compliance with case-management requirements to litigants in person.
Grounds of application
Mr Faloon seeks the extension so that the appeal against the refusal of the suspension application can be determined. If he is successful with that, he says, he can then prosecute through to judgment the five High Court proceedings. He says he should be able to do that because the outcome of those proceedings is very important to the resolution of this appeal.
The situation is then that in this appeal, Mr Faloon seeks to defer the hearing of the appeal against orders bankrupting him to enable the bankruptcy-suspension appeal to be heard first, even though the point of the suspension application was to suspend the bankruptcy while this (bankruptcy) appeal was determined. The circuity of what Mr Faloon attempts to achieve is apparent. In reality, what Mr Faloon seeks to achieve is the indefinite delay of the hearing of this appeal while he continues with his proceedings in the High Court. The reasons Mr Faloon gives for the extension he seeks are therefore illegitimate.
At the moment the Commissioner has the benefit of an adjudication against Mr Faloon. Mr Faloon wishes to appeal that. He must do so promptly. There is no logic in delaying the determination of this appeal pending determination of any other current appeal or litigation.
Merits of the proposed appeal
The absence of good reason to extend time is on its own dispositive of the application. However, we address the other critical factor — the merits of the proposed appeal — as we consider that equally fatal to the application.
The Commissioner’s application to bankrupt Mr Faloon was founded upon four acts of bankruptcy committed by him for the purposes of s 17 of the Insolvency Act: he failed to comply with bankruptcy notices issued in respect of four costs orders against him and in favour of the Commissioner. The Judge said the petitions were in respect of debts quantified and payable when the orders for costs were made.[17] Mr Faloon had not made any payment to the Commissioner in reduction of his indebtedness under the orders for costs and he had not taken any other steps that would amount to compliance with the bankruptcy notices.[18]
[17]Bankruptcy judgment, above n 1, at [10].
[18]At [10].
The Judge rejected various arguments advanced by Mr Faloon as follows:
(a)technical arguments relying upon defects in the bankruptcy notices;[19]
(b)arguments that Mr Faloon was immune from bankruptcy. Mr Faloon said he was acting either as a trustee or as an administrator of the estate of his late father. However, as the Judge noted, Mr Faloon had issued the proceedings in his own name, he was not the executor of his father’s estate and, even if he had been acting in that capacity, he would still be personally liable for the costs. The Judge also rejected arguments that Mr Faloon was immune from bankruptcy proceedings because he and his father were acting under “special powers” when they undertook the division of the Kawau Stream. The Judge said Mr Faloon was not operating under any “special powers” when he brought the proceedings. The Judge rejected a variety of arguments that Mr Faloon was immune based on statutory provisions including that Mr Faloon was a “special drainage or river authority” under s 2 of the Soil Conservation and Rivers Control Amendment Act 1946. The Judge rejected an argument that Mr Faloon could not be bankrupted because he was a corporation, association or company registered or incorporated under any Act;
(c)the Commissioner had misstated the position when she said in the bankruptcy application that Mr Faloon had no security for the debt.[20] Mr Faloon put forward various ways in which security could be provided to the Commissioner. The Judge said any security Mr Faloon was offering was speculative and did not disqualify the Commissioner from applying for adjudication;
(d)that Mr Faloon had a claim which could give rise to insolvency set‑off under s 254 of the Insolvency Act. The Judge accepted that insolvency set‑off under s 254 can apply between the Crown and the taxpayer and that, if Mr Faloon had a genuine claim against the Crown which could be properly taken into account under s 254 of the Insolvency Act, such a claim could provide grounds to consider further whether Mr Faloon should be adjudicated bankrupt. But the Judge rejected the possibility that there was such insolvency set-off. He said the matters that Mr Faloon wished to raise against the Crown were matters he had already litigated in court before and in which he had a consistent history of losing. The claims, Associate Judge Bell said, had fundamental flaws; and
(e)that the Commissioner acted oppressively in bringing the bankruptcy application because of the Commissioner’s desire to stymie any further litigation.[21] The Judge also observed:[22]
Mr Faloon’s concern is that any right to litigate on his current causes of action will vest in the Official Assignee. I do not regard that as necessarily a bad thing. Mr Faloon has shown a keenness to litigate pointlessly many times. It may be helpful if an independent person such as the Official Assignee could view the matters afresh … .
[19]At [27].
[20]At [33].
[21]At [40].
[22]At [42].
The Judge then addressed the exercise of the residual discretion under ss 36 and 37 of the Insolvency Act.[23] He noted that Mr Faloon is insolvent. He also addressed Mr Faloon’s argument that bankruptcy would result in him being unable to prosecute the various proceedings he has on foot at this time. However the Judge said:[24]
Given his consistent lack of success, it is desirable that one of the consequences of his being adjudicated bankrupt is that he will no longer be able to take proceedings and that proceedings will only be undertaken if the Official Assignee can be satisfied that they will be viable and that there are good prospects of success.
Arguments Mr Faloon seeks to advance on appeal
[23]At [43].
[24]At [48].
The issues Mr Faloon seeks to pursue on appeal include that the written judgment produced by the Judge, following oral delivery of the judgment, contains new material. He refers in particular to that part of the judgment which narrates Mr Faloon’s history of litigation. Even if Mr Faloon is correct that this was material introduced into the written draft (and we make no determination that it is since we have seen no evidence to that effect), it is simply in the nature of background material. Although Mr Faloon takes issue with detailed points in the narrative of history, the picture that emerges from that narrative — of serial and unsuccessful litigation — is undoubtedly correct. It is that which the Judge predominantly took into account.
Mr Faloon wishes to argue that the Judge had no jurisdiction to reject his arguments that he was immune from bankruptcy proceedings. He also says that in rejecting that argument, the Judge predetermined matters at issue in other proceedings in the High Court at Wellington. The Judge was undoubtedly correct to reject these arguments. The costs orders were against Mr Faloon personally. He is not and cannot be an incorporated entity. His other arguments for immunity based on statute are legally incoherent. Nor is there an issue of predetermination by the Judge. Mr Faloon raised the arguments within the context of bankruptcy proceedings. They were properly addressed in that context.
Mr Faloon also seeks to pursue his argument that he has a set-off to the Commissioner’s claim. But the claims upon which he seeks to ground his set‑off have been heard and rejected on multiple occasions. Mr Faloon’s claims all relate to dealings concerning land in which he had no interest. The original registered proprietor of the land was a company, Trade Lines Ltd. Any claims that arise out of the remodelling of the Kawau Stream and the compulsory acquisition of the land are claims for that company.[25] Although Mr Faloon claims Trade Lines Ltd held the land on a resulting trust for his parents and he purports to pursue the claims on the basis that he is acting to pursue interests his father had in the land, Mr Faloon was not a trustee, executive or administrator of his father’s estate. He therefore has no standing to pursue the claims.
[25]We understand it to be in liquidation.
Another issue raised by Mr Faloon seems to be a new argument: that various entries on the land register in respect of the land connected to the compulsory acquisition process were invalid because they were “disallowable instruments” for the purposes of the Legislation Act 2012 and s 25 of the Financial Reporting Act 2013. These entries do not meet the definition of “disallowable instrument” as set out in s 38 of the Legislation Act and thus we consider this argument to be untenable.
Mr Faloon has also raised a multiplicity of other matters including claims to rights of compensation or income in respect of copyright or patent for the plans for the redesign of the Kawau Stream, and disputes as to how the airport has treated the land it acquired for taxation purposes. These arguments make no sense legally and certainly do not satisfy us there is any prospect that Mr Faloon can construct a set-off for the purposes of s 254 of the Insolvency Act.
The appeal that Mr Faloon seeks to pursue is, we are satisfied, hopeless.
To conclude, Mr Faloon has delayed in the prosecution of this appeal. He seeks to be allowed further delay, without offering any good reason for that request. We also note that Mr Faloon has not paid the amount ordered for security for costs or indicated that he will do so. Accordingly, the appeal is susceptible to being struck out under r 37 of the Court of Appeal (Civil) Rules in any event. The appeal he wishes to pursue is without merit.
Result
For these reasons we are satisfied that the application for orders extending time for allocating a hearing and filing the case on appeal should be declined.
In the circumstances, the applicant must pay the respondent costs for a standard application for leave to appeal on a band A basis and usual disbursements.[26]
Postscript
[26]Where the Court of Appeal (Civil) Rules are silent on the issue of costs, the Court looks to the costs awarded for a similar procedure. Here, the most useful analogy is a standard application for leave to appeal: see Tod v Tod [2015] NZCA 501 at [29]; and Erwood v Official Assignee [2015] NZCA 620 at [42].
Finally, we note that Mr Faloon raised in advance of the hearing, by email to the Registry, that in the early 1990s Randerson J had acted for a party in proceedings connected to the acquisition of the land by the airport. At the commencement of the hearing Mr Faloon confirmed that he did not raise this as a matter disqualifying Randerson J from hearing this application. We agree with that assessment.
Solicitors:
Crown Law Office, Wellington for Respondent
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