Jayashree Limited v Commissioner of Inland Revenue
[2023] NZHC 2723
•2 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-000855
[2023] NZHC 2723
UNDER Part 20 of the High Court Rules 2016 IN THE MATTER
of an appeal of a District Court decision
BETWEEN
JAYASHREE LIMITED
Appellant
AND
THE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 19 September 2023 Appearances:
M Karmarkar (Director of the Appellant)
K Naik-Leong and C Russell for the Respondent
Judgment:
2 October 2023
JUDGMENT OF GORDON J
This judgment was delivered by me on 2 October 2023 at 11 am, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Crown Law, Wellington Copy to: M Karmarkar
JAYASHREE LTD v THE COMMISSIONER OF INLAND REVENUE [2023] NZHC 2723 [2 October 2023]
[1] Madhav Karmarkar, the sole director and shareholder of the appellant, Jayashree Ltd (Jayashree), has filed an appeal for Jayashree against a decision of Judge AA Sinclair in the District Court at Auckland issued on 23 March 2023 granting an application by the respondent, the Commissioner of Inland Revenue (Commissioner), to strike out a statement of claim filed by Mr Karmarkar. The strike-out application was on the basis the claim disclosed no reasonably arguable cause of action against the Commissioner, by either Mr Karmarkar or Jayashree.1
[2] Mr Karmarkar has filed an application for Jayashree seeking leave for him to represent Jayashree at the hearing of the appeal (the Application). Mr Karmarkar was permitted to appear and make submissions on the Application.
[3] Jayashree’s application is opposed by the Commissioner. The Commissioner’s position is that Jayashree cannot establish the sort of exceptional circumstances (or bring itself within the “reserve or occasional expedient” discretion) that might justify a departure from the well-settled rule in Re G J Mannix, that a company has no right to be represented in the conduct of a case in court except by a barrister, or by a solicitor in courts or proceedings where solicitors have the right of audience.2 The Commissioner says this extends to the filing of documents, including the proposed appeal on behalf of Jayashree filed by Mr Karmarkar.3
Background
[4] In July 2022 Mr Karmarkar filed a notice of proceeding and statement of claim (the Claim) in the Auckland District Court. The proceedings were brought by Mr Karmarkar as plaintiff in his own name against an accountancy firm, Quality Business Solutions Ltd (QBSL) as first defendant and the “Internal Revenue Department” as the second defendant.
1 Karmarkar v Quality Business Solutions Ltd [2023] NZDC 5239.
2 Re G J Mannix [1984] 1 NZLR 309 (CA) at 310–311.
3 The Commissioner refers to High Court Rules 2016, r 5.36 and Lawyers and Conveyancers Act 2006, ss 6, 24 and 27. The Commissioner also refers to Lynskey v Dorley Holdings Ltd (1988) 2 PRNZ 637 (HC) as authority for the proposition that where proceedings are commenced by a corporation, they may only be filed by a solicitor on behalf of the corporation.
[5] The Claim sought $50,000 compensation from the Inland Revenue Department (Inland Revenue) “for stress caused by habitually wrong scrutiny”.4
[6] The Claim included the following allegations which Mr Karmarkar repeats in the Application.
(a)Mr Karmarkar is responsible for filing GST returns for all the companies he identifies of which he was director, including Jayashree, since their inception.
(b)Mr Karmarkar diligently filed GST returns on time as per the treatment of GST for residential rental income and expenses based on the advice given by QBSL.
(c)All the GST returns were scrutinised by Inland Revenue twice in the years 2010/2011 and 2018/2019.
(d)Suddenly Inland Revenue advised Mr Karmarkar that he could no longer treat residential rental income and expenses for GST accounting.
(e)Mr Karmarkar felt “humiliated, inconvenienced and like a criminal and was stressed beyond imagination”.
(f)Mr Karmarkar “felt cheated and was aghast that all his sincere efforts to file proper gst on time were completely lost, because of erroneous advice of Quality Business Solutions Limited and habitually erroneous scrutiny by IRD of New Zealand”.
[7] Mr Karmarkar is not GST registered. As is apparent, the Claim arises out of scrutiny of Jayashree’s GST returns. No pleading relating to Jayashree or any purported loss it suffered were included in the Claim.
4 The Claim sought a similar amount of compensation from Quality Business Solutions Ltd. That company will be mentioned in passing as part of the background context only.
[8] The Commissioner filed an interlocutory application seeking an order striking out the Claim on the grounds that the Claim disclosed no reasonably arguable cause of action against the Commissioner. One of the grounds was that Mr Karmarkar was not the correct plaintiff; Jayashree was the correct plaintiff.
[9] After the Claim was filed the Commissioner issued a notice of proposed adjustment to Jayashree, initiating the disputes procedure under Part 4A of the Tax Administration Act 1994 (TAA). Following this, Jayashree issued a notice of response.
[10] On 23 November 2022 a Judge of the District Court issued a minute granting Mr Karmarkar leave to join Jayashree (and another of his companies) as additional plaintiffs. The Court directed that these companies were to file amended pleadings within 14 days of the minute. No amended statement of claim was filed.
[11] Judge Sinclair heard the strike-out application on 14 March 2023 and issued her judgment on 23 March 2023. The Judge held that the Claim disclosed no reasonably arguable cause of action against the Commissioner by either Mr Karmarkar or Jayashree. Further, she considered the defects in the Claim were not defects that could be cured by the filing of any amended statement of claim.
[12] On 13 April 2023 Mr Karmarkar filed a Notice of Appeal in this Court. On the cover page he named himself as the “plaintiff”. In the body of the Notice of Appeal it is stated that “the applicant Madhav Hari Karmarkar and Jayashree Limited, will on 15th April 2023 apply to the High Court to appeal” against Judge Sinclair’s decision.
[13] On 11 May 2023 counsel for the Commissioner filed a memorandum submitting the Court should join Jayashree as an appellant, and remove QBSL as a respondent, and Mr Karmarkar should either engage counsel for Jayashree or seek orders from the Court allowing him to represent Jayashree.
[14] On 23 May 2023, at the first call of the appeal, Mr Karmarkar accepted those orders should be made including his removal as an appellant and they were made accordingly.
Legal principles
[15] The “Mannix” rule is that a company has no right to be represented in the conduct of a case in court except by a barrister or solicitor of the High Court. However, in Mannix Cooke J observed that the courts maintain a residual discretion to allow unqualified advocates to appear before them. Justice Cooke said:5
In general, and without attempting to work out hard-and-fast rules, discretionary audience should be regarded, in my opinion, as a reserve or occasional expedient, for use primarily in emergency situations when counsel is not available or in straightforward matters where the assistance of counsel is not needed by the Court or where it would be unduly technical or burdensome to insist on counsel. Especially in minor matters, cost-saving could also be a relevant factor. A "one-man" company might be allowed to be represented by its owner if the Judge saw fit in a particular case. But it could not be right, for instance, to issue some sort of tacit continuing or general licence to an unqualified agent to appear in winding up or any other class of proceedings.
[16] In The Commissioner of Inland Revenue v Chesterfields Preschools Ltd the Court of Appeal stated that “the current law is that the Mannix rule may be departed from only in exceptional circumstances”.6
[17] In Keemati Ltd v MR Civil Ltd Associate Judge Lester set out relevant considerations for the exercise of the Court’s discretion to allow non-lawyers to appear on a company’s behalf, including: the nature of the litigation; the complexities of the case; the extent of the dispute; the point at which audience is sought; the importance of an understanding of the law and a dispassionate consideration of the circumstances; that the preliminary and interlocutory stages are important to the determination of litigation and the filing of a compliant statement of claim assists in this process; and the need for professional objectivity, including whether the person proposed to represent the company is closely associated with the applicant company and is also a witness.7
[18] To that list I would add whether or not the application is made in an emergency situation.8
5 Re G J Mannix, above n 2, at 314.
6 The Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53 at [34].
7 Keemati Ltd v MR Civil Ltd [2021] NZHC 538 at [6].
8 Re G J Mannix, above n 2, at 314.
Jayashree’s/Mr Karmarkar’s position
[19] Mr Karmarkar says: he has personally worked on the financial accounts of Jayashree since 2008 onwards and filed returns to Inland Revenue every year thereafter; he has substantial experience in accounting in New Zealand and overseas; he has studied cost accounting as a student from 1990 onwards; he took over the accounts from QBSL; the proceeding strictly relates to the financial accounts of Jayashree and Mr Karmarkar is better suited to represent Jayashree than a solicitor; and he has argued many legal cases in New Zealand involving himself and his company and is conversant with court procedures and ethical standards.
[20] Mr Karmarkar makes further submissions under the considerations in Keemati referred to in [17] above. I will refer to those submissions (and the submissions for the Commissioner) when I consider those criteria as relevant. I will group some of them together in my discussion.
The starting point
[21] The starting point is that generally applications to represent a company in the High Court by anyone who is not a properly qualified lawyer are rarely granted. Granting such an application is the exception. However, that principle must be considered in terms of the particular circumstances of the hearing or hearings for which leave is sought.9
This is not an emergency situation
[22] Ms Naik-Leong, counsel for the Commissioner, submits that this is not an emergency situation. Mr Karmarkar concedes that “there is no emergency to consider this application”. By that submission Mr Karmarkar appears to agree, as do I, that this is not an emergency situation where counsel is not available.10 Additionally, there is no evidence produced by Jayashree that counsel is unavailable to represent it.
9 Flow Control Ltd v Il Forno Ltd [2021] NZHC 946 at [29]–[30].
10 Re G J Mannix, above n 2, at 314.
Nature and complexities of the litigation and extent of dispute
[23] Mr Karmarkar submits that Jayashree did not get an opportunity for a full-scale hearing in the District Court. He seeks a rehearing with all relevant documents submitted under standard discovery.
[24] This is but one example of the submissions made by Mr Karmarkar which indicates that he does not grasp the relevant legal issues. The appeal is against a decision on a strike-out application. By its nature, such an application is not a full- scale hearing.
[25] Mr Karmarkar contended in the District Court that the advice he was previously given by Inland Revenue officers was erroneous. This advice was not particularised in the Claim.11
[26] Counsel for the Commissioner argued in the District Court that the Claim was deficient and disclosed no appropriate pleading to establish a cause of action in the tort of negligence. It was further submitted there was nothing in the Claim to indicate what the cause of action was, except for the cover page which stated that the Claim was under the “GST Act, Fair Trading Act, Consumer Guarantees Act, Tort of negligence”.
[27] Mr Karmarkar submits there is “no complexity whatsoever” in the proceeding. He says the scope of the dispute is limited only to the “GST paid for rental income and expenses, which is the result of wrong professional advice and subsequent careless scrutiny by the IRD officers”.
[28] While I consider the proceeding is not overly complex, there are legal technicalities which Mr Karmarkar does not seem to have grasped. First, there will be difficulties for Jayashree in advancing the appeal because of a non-compliant Claim. Jayashree’s grounds of appeal include that the District Court Judge erred in: “not taking cognizance of the civil wrong committed by IRD scrutiny officers, in habitually misleading the appellant into erroneous way of calculating Goods and Services tax
11 Karmarkar v Quality Business Solutions Ltd, above n 1, at [18].
(GST) on rental income and expenses”; “not taking cognizance of the careless and negligent working of IRD scrutiny officers and claims that they have no duty of care to perform their jobs diligently”; and “not taking cognizance of habitually negligent and careless scrutiny, made by income revenue department (IRD) officers”.
[29] However, as Judge Sinclair said in her decision, Mr Karmarkar had not identified any specific common law duty of care or any particular statutory duty owed to him and/or Jayashree which is said to have been breached by the Commissioner.12 The District Court could, therefore, not take “cognizance of any civil wrong or negligence” as none had been identified by Mr Karmarkar in the District Court.
[30] There are further legal issues which create difficulties for Jayashree. The Judge stated: there can be no compensation for stress by a limited liability company;13 there is no loss pleaded by the company; and a final determination of Jayashree’s GST position has yet to be made in the course of the disputes process which is underway and ongoing. In other words, whether the advice alleged to have been given was erroneous, has also yet to be determined.14
[31] These are all issues on which Jayashree should have legal assistance in order to understand them and address them as necessary in the appeal.
Need for dispassionate consideration of circumstances and professional objectivity
[32] Mr Karmarkar submits that although he is not a lawyer by occupation, he has experience of representing himself or his organisation in various courts in India and New Zealand. He says he has been successful in a few cases but does not identify them. He acknowledges he is the 100 per cent owner of Jayashree and is closely associated.
12 At [17].
13 At [19].
14 At [20]. The tax dispute is proceeding through the disputes procedure under Part 4A of the Tax Administration Act 1994 (TAA). If the dispute is not resolved, the challenge procedure in Part 8A of the TAA may be invoked. The jurisdiction to hear a tax challenge is vested in a hearing authority which is either the Taxation Review Authority or the High Court. The District Court does not have jurisdiction to determine whether Jayashree’s GST assessments are correct. See at [14] and [15].
[33] In Chesterfields Preschools the Court of Appeal considered that there were sound policy reasons for why a solicitor rather than a layperson, such as an officer of a company, should act for the company in commencing and continuing litigation. The Court of Appeal enunciated those reasons as follows:15
… A solicitor is ethically constrained to represent the company’s interests, 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 to 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.
[34] Mr Karmarkar claims he is “… conversant with court procedures and ethical standards”. I consider, however, Mr Karmarkar’s actions in this proceeding have demonstrated a disregard for court procedure. He did not advise the Court that he has previously attempted to act for Jayashree without the leave of the Court. It took counsel for the Commissioner to bring the relevant judgments to the Court’s attention.
[35] In a judicial review filed by Mr Karmarkar on behalf of Jayashree he failed to find legal representation for the company after the proceeding was adjourned three times to allow him to do so.16 The High Court held it would be “… contrary to good authority, and good reason, for Mr Karmarkar to represent the company”.17 The Judge noted that Mr Karmarkar had been given more than enough time to find legal representation for the company but failed to do so over some four months.18 The Court struck out the proceeding.
[36] Jayashree then appealed the decision of the High Court. As the Court of Appeal noted, there was an obvious difficulty with the appeal in that Jayashree was not a party to the proceeding in the High Court.19 The Court noted that in addition, Jayashree was
15 The Commissioner of Inland Revenue v Chesterfields Preschools Ltd, above n 6, at [34] (footnotes omitted).
16 Karmarkar v Moore [2020] NZHC 3480 at [4].
17 At [10].
18 At [10].
19 Jayashree Ltd v Moore [2022] NZCA 151 at [1].
not represented, even though both the High Court and the Court of Appeal had made it clear that it required representation in order to advance the appeal to a hearing.20 The Court went on to note that despite being notified of that requirement many times (through Mr Karmarkar) Jayashree had not filed any document in court, or given notice to the respondent, to indicate that it now had representation. The Court of Appeal concluded:
[17] The first three grounds relate to the lack of legal representation. There is no basis for excusing Jayashree Ltd from the usual requirement for representation. To the contrary, this case is a very good example of why the rule exists. Nor can there possibly be any merit in the assertion that insufficient time has been allowed to make the necessary arrangements. It is obvious from our review of the procedural history that Mr Karmarkar/Jayashree Ltd have been indulged to a considerable extent in both the High Court and this Court. To bring an appeal on the ground that insufficient opportunity was provided to comply with a fundamental obligation that was well known to Mr Karmarkar/Jayashree Ltd is a waste of the Court’s resources and unfair to Mr Moore.
[37] As Ms Naik-Leong submits, Mr Karmarkar is clearly aware of the Mannix rule. He has chosen simply to ignore the rule rather than comply with it by attempting to file another appeal on behalf of Jayashree despite being told many times by this Court and the Court of Appeal that a company requires legal representation before this Court and the Court of Appeal. In this respect it is apparent that Mr Karmarkar does not respect the rule of law.
[38] Additionally, Mr Karmarkar acknowledges he is “closely associated” with Jayashree. But he also goes on to submit that “there is no question of suffering of interest of any other person but Madhav Hari Karmarkar”. It is not entirely clear what Mr Karmarkar means by that submission but it appears he is aligning his interests with Jayashree’s interests and does not consider Jayashree as a separate legal entity. Professional objectivity is absent in this case.
[39] There is also a lack of understanding of the law on Mr Karmarkar’s part when one considers the primary relief sought in this interlocutory application: that Jayashree “should kindly be given an opportunity to present the documents of financial loss,
20 At [1].
which occurred in excess GST payment to IRD on account of rental income and expenses”. That relief could not be given in this application.
[40] There is no argument made by Mr Karmarkar that it would be unduly burdensome to insist on counsel to represent Jayashree. The opposite is the case when all the circumstances are considered. Further, the Court was told that Mr Karmarkar will be out of the country from 15 October 2023 to 16 March 2024. If Jayashree was given leave for Mr Karmarkar to represent it, then the appeal would languish over that period. That is undesirable.
Case cited by Mr Karmarkar
[41] It is apparent from the above discussion that the Court is not persuaded that the application should be granted. However, for completeness, I mention one of the cases relied upon by Mr Karmarkar. Mr Karmarkar submits that this Court in Flow Control Ltd v Il Forno Ltd “observed that the knowledge and understanding of the case by the director applying to represent the plaintiff, far outweighed the need of objectivity and professionalism”. The Judge did not say that in his decision refusing the application,21 nor in his decision refusing leave to appeal his decision on the application.22
[42] Mr Karmarkar’s submission that the case supports his application is another example of his failure to properly assist the Court in a manner that is expected a lawyer will do with professional objectivity.
Conclusion
[43] In conclusion, for all the above reasons I am satisfied that Mr Karmarkar should not be permitted to represent Jayashree at the hearing of Jayashree’s appeal.
[44] Further, Mr Karmarkar is not permitted to file documents on behalf of Jayashree for the proposed appeal. Having determined that Mr Karmarkar is not allowed to represent Jayashree in connection with this proceeding, it follows that he is not one of the persons permitted to file documents on behalf of Jayashree. The
21 Flow Control Ltd v Il Forno Ltd, above n 9.
22 Flow Control Ltd v Il Forno Ltd [2021] NZHC 1301.
appeal was accordingly not properly brought. The Notice of Appeal is non-compliant having been filed by Mr Karmarkar. I have given thought as to whether I should allow the appeal to remain on foot to give Jayashree the opportunity to instruct a solicitor to represent it. On that issue I have considered the judgment of the Court of Appeal in Kai Iwi Tavern Ltd v The New Zealand Guardian Trust Company Ltd.23 In that case the Registrar of the Court of Appeal had refused to accept a notice of appeal for filing on the basis that the notice was not signed by a lawyer. The appellant filed an application for review of the Registrar’s decision. In his judgment Stevens J said:24
[9] The step that the appellant sought to take on 14 May 2013 by presenting the notice of appeal for filing was a formal procedural step in order to initiate the appeal. The notice was signed by a director of the company. Had he been aware of the Mannix rule the director ought to have sought leave to sign and file the notice of appeal for the company.
[10]The Registrar relied on the rule in Mannix. However, as noted, the
Mannix principle is not absolute.
[11] The discretion referred to at [8] above should be applied reasonably generously where, as in the present case, time limits are rapidly approaching and the director is only seeking leave to file the notice of appeal. It may often be the case that a company appellant does not have time to arrange legal representation prior to the filing of an appeal.
[12] In the particular circumstances of this case, I consider that it is appropriate that Mr Oliphant be granted leave to file the notice of appeal. In reaching this conclusion I take into account the fact that the appellant is in fact represented by a firm of solicitors who will have responsibility for the conduct of the appeal. I also take into account that Mr Oliphant is the sole director of Kai Iwi Tavern Ltd, and that the appeal is at a very early stage.
[45] The circumstances surrounding the filing of this appeal are somewhat different. Here, both Mr Karmarkar and Jayashree were very well aware that leave would be required for Mr Karmarkar to represent Jayashree.25 Nevertheless the Notice of Appeal in this case was filed without leave being sought.
[46] Further, unlike the situation in Kai Iwi there is no firm of solicitors representing Jayashree waiting in the wings as there was in Kai Iwi.
23 Kai Iwi Tavern Ltd v The New Zealand Guardian Trust Company Ltd [2013] NZCA 199.
24 At [9]–[12].
25 Refer [35] to [37] above.
[47] I propose to strike out the appeal on procedural grounds. That will not prevent a solicitor instructed by Jayashree applying for leave to file a fresh appeal out of time. Whether leave should be given will be considered in all the circumstances existing at that time.
Result
[48] The application for leave for Mr Karmarkar to act for Jayashree Ltd at the hearing of the appeal is declined.
[49]The appeal is struck out on procedural grounds.
Costs
[50] I did not hear from counsel for the Commissioner or Mr Karmarkar on costs. Accordingly, I reserve costs.
[51] Ms Naik-Leong notes in the Commissioner’s submissions that the Commissioner seeks costs on a category 2B basis. Prima facie, as the successful party, the Commissioner would be entitled to costs against Jayashree. However, given that I did not hear submissions I give Jayashree the opportunity to respond.
[52] In the first instance, if counsel and Jayashree are able to agree costs a joint memorandum should be filed within 20 working days of the date of this judgment.
[53] If costs cannot be agreed, a costs memorandum on behalf of the Commissioner is to be filed and served within five working days of the date for the joint memorandum. Jayashree is to respond by filing and serving its memorandum of submissions within five working days of the date of service of the Commissioner’s memorandum on him.
[54] Costs memoranda are not to exceed three pages. The Court will consider and determine costs on the papers.
Gordon J
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