Il Forno Limited v Commissioner of Inland Revenue

[2015] NZHC 2695

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2014-404-000452 [2015] NZHC 2695

BETWEEN

IL FORNO LIMITED

Applicant

AND

COMMISSIONER OF INLAND REVENUE

Respondent

Hearing:	7 September 2015
Appearances:	D J Kleine for Applicant J V Angelson for Respondent
Judgment:	2 November 2015

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 2 November 2015 at 4.30 pm

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date…………………………

IL FORNO LTD v COMMISSIONER OF INLAND REVENUE [2015] NZHC 2695 [2 November 2015]

Introduction

[1]      Il Forno Ltd was found guilty in the District Court at Auckland on several charges relating to the failure to file GST returns, income tax returns and PAYE returns.1    Its application for a discharge without conviction was refused and it was

fined a total of $8,200 plus costs.2    It has filed a notice of appeal against sentence,

with an indication that the appeal may also be brought against conviction.

[2]      Il Forno must have counsel on its appeal unless this Court directs otherwise.3

It has applied for leave to have its accountant (and brother of Il Forno’s director), Douglas James Kleine, represent it.4   The Commissioner of Inland Revenue opposes the application.

[3]      The legal position is well settled: apart from statutory exceptions only a litigant in person or a qualified lawyer may present a case in the Higher Courts.  In Commissioner of Inland Revenue v Chesterfields Pre-schools Ltd & Ors the Court of Appeal referred to the long-standing authority on this point, Re G J Mannix Ltd, and summarised the reasons for this rule:5

We consider that there are sound policy reasons why a solicitor, rather than a lay person such as an officer of a company, should act for the company in commencing and continuing civil litigation.   A company is not a natural body and may have a number of officers, each with their own individual concerns and interests.  A solicitor is ethically constrained to represent the company’s interest, unlike an individual officer who seeks to represent it. Moreover, if a solicitor is involved, the Court can generally be satisfied that careful attention has been given to the validity of the proceedings and that the  company’s  interests  will  be  adequately  presented  and  protected. Similarly, solicitors recognise the duties and responsibilities that are owed the Court and to the defendant in the conduct of litigation and are less likely to require indulgences in the rules of procedure or to use court processes for vexatious purposes.  The Court must also have a solicitor on the record as it cannot exercise its disciplinary powers over a company.   If a director or shareholder is representing the company there is a heightened risk that the representative  will  lack  the  objectivity  that  an  independent  solicitor  can bring to the case.  It is no doubt for these reasons that the current law is that the Mannix rule may be departed from only in exceptional circumstances.

1      Inland Revenue Department v Il Forno Ltd DC Auckland CRI-2013-004-002514, 15 September

2014

2      Inland Revenue Department v Il Forno Ltd DC Auckland CRI-2013-004-002514, 24 November

2014.

3      Re G J Mannix Ltd [1984] 1 NZLR 309 at 311.

4      I permitted Mr Kleine to argue this application.

5      Commissioner of Inland Revenue v Chesterfields Pre-schools Ltd & Ors [2013] NZCA 53 at

[34].

[4]      The issue in this application is whether the circumstances of the present case justify departing from the recognised rule.

Background

[5]      Il Forno was and still is an artisan bakery that employs approximately 20 staff.   It was charged in March 2013 with the six offences of which it was later convicted.  Following a first call in April the matter was called again on 11 June at which time counsel for the Commissioner was Mr Ananth.  Mr Ananth had, in fact, tendered his resignation before that date and ceased working for the Commissioner on 21 June 2013.

[6]      Subsequently, Il Forno’s solicitors engaged Mr Ananth as its counsel for the defended  hearing.     The  possibility  of  a  conflict  of  interest  was  considered. Mr Ananth did not see any conflict and Il Forno was not concerned at Mr Ananth’s previous involvement for the Commissioner.   However, just before the defended hearing date on 11 September 2013 the Commissioner asserted that there was a conflict of interest based on Mr Ananth’s access to confidential information relating to the prosecution.

[7]     Although Mr Ananth maintained that there was no valid basis for the Commissioner’s objection he nevertheless expressed a desire to withdraw.  Il Forno resisted that, having already paid fees of $3,480 for briefing Mr Ananth.  According to Mr Kleine efforts were made to engage alternate counsel but the cost indications it obtained were out of its reach.  Mr Ananth proposed that Il Forno seek a ruling from the District Court, signalling that he would only continue to act with the consent of the Court.

[8]      Mr Kleine appeared for Il Forno to argue the conflict issue before Judge Aitkin.6    Counsel for the Commissioner conceded that the sole ground of objection was “a perceived conflict of interest” based on “a general knowledge of the Inland Revenue’s processes”.  In particular, he acknowledged that there was no confidential information to which Mr Ananth was privy and no other specific aspect that could be

identified as creating a conflict of interest.   Nevertheless Judge Atikin declined to

6      Permitted by s 57(2) District Courts Act 1947.

make  any  order,  holding  that  Mr Ananth’s  status  was  outside  any  supervisory jurisdiction of the District Court and his withdrawal as counsel was a matter between him and Il Forno.7

Application

[9]      I permitted Mr Kleine to appear for the company on the hearing of this application.

[10]     The  offences  of  which  Il  Forno  were  convicted  were  absolute  liability offences under s 143 of the Tax Administration Act 1994.   Mr Kleine had argued (unsuccessfully) that Il Forno had a defence of having taken all reasonable care8 and also sought to impugn the Commissioner’s decision to prosecute, asserting a breach by the Commissioner of a duty of care.

[11]     The ground on which the application is made is that the level of fine imposed by the District Court (the subject of appeal) has technically rendered Il Forno insolvent so that it cannot fund fresh counsel; if Mr Kleine is not permitted to appear, it will effectively be deprived of its right of appeal.  Mr Kleine has also sought to suggest that it is very difficult to find counsel capable of arguing the case.

[12]     When this matter was called before Fogarty J in March 2015 Mr Kleine provided information informally about Il Forno’s financial position.   He advised Fogarty J that the company was trading, had a turnover in excess of $1m per annum and an overdraft of $10,000 within which it was operating.9   By the time the matter came before me in September 2015 Mr Kleine had filed an affidavit in which he provided further information about Il Forno’s financial position and efforts to find suitable alternative counsel.

[13]     Mr Kleine has deposed that Il Forno applied to its bank to increase the overdraft to $20,000 but that the bank had declined that application (a copy of a letter from ANZ dated 24 April 2015 to that effect was annexed).  Mr Kleine also

provided further information regarding Il Forno’s cash position, noting that as at

7      Commissioner  of   Inland   Revenue   v   Il   Forno   Ltd   DC  Auckland   CRN-13004500937-

13004500969, 3 September 2014.

8      Relying on Millar v Ministry of Transport [1986] 2 CRNZ 216.

9      Minute of Fogarty J 25 March 2015.

19 May 2015 it had cash on hand of $44,038 with pending payments to creditors and to the Commissioner of $50,658.  In addition, it faces a contingent liability for the District Court fines if its appeal is not successful.

[14]     Mr Kleine described his efforts to obtain legal advice regarding the appeal. He deposes that the “typical response that I have received is that the required combination of tax and public law experience is rare and I seem to be following up an ever wider ‘fan’ of alternate practitioner recommendations without actually being able to obtain advice”.

[15]     In his affidavit Mr Kleine identified as the proposed ground of appeal against conviction  error  by  Judge  Sharp  in  finding  that  low  culpability  is  effectively excluded as a defence in cases of absolute liability offences and in failing to take into account the Commissioner’s delays.  Mr Kleine also sought to link the low level of Il Forno’s culpability to the s 106 application, though I note that the appeal currently brought is against the level of the fine rather than the refusal to grant the discharge without conviction.

[16]     The relevant considerations in this case are as follows.  First, whilst there are technical issues raised on the appeal, it does not appear so complex that competent counsel could not be found to argue it for a reasonable fee.   Secondly, whilst the amount paid to Mr Ananth may be substantial for Il Forno in the context of this matter, they do not seem to me to be excessive and nor will the work have been wasted  because  new  counsel  will  have  the  benefit  of  arguments  formulated  by Mr Ananth while he was counsel. Whilst there is always some slight level of overlap when one counsel takes over from another,  I would not have thought that new counsel would require a significant amount of time to become familiar with the matter.  Thirdly, it is implicit in Mr Kleine’s submissions that if Mr Ananth had been available Il Forno would have engaged him for the appeal so it must  have the capacity to meet legal fees associated with the appeal.

[17]     Mr Kleine plainly has knowledge of Il Forno’s circumstances and is capable of producing submissions that would assist the Court.  However, I am not satisfied that those submissions will be of the quality that can be expected of counsel experienced in this area and, taking all the relevant factors into account, I do not see

this case as exceptional to the point of justifying a departure from the established rule. The application is refused.

[18]     There is a further matter.   In his memorandum Mr Kleine sought leave to bring an appeal against conviction.   Given that Il Forno’s initial notice of appeal specifically referred to that prospect I consider that it should be treated as encompassing an appeal against conviction.   There is, however, an obvious issue regarding the application to discharge without conviction.  That is not referred to in the notice of appeal but I detected from some of Mr Kleine’s arguments that Il Forno might have intended to appeal that decision.  In the circumstances I grant leave to bring an appeal against the refusal to grant a discharge without conviction out of time.  An amended notice of appeal setting out the grounds for the appeal against conviction and, if an appeal in relation to the refusal to grant a discharge without

conviction is intended, grounds for that appeal also, is to be filed within 14 days.

P Courtney J