Krukziener ex parte Commissioner of Inland Revenue HC Auckland CIV 2009-404-005101
[2010] NZHC 131
•17 February 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2009-404-005101
IN THE MATTER OF The Insolvency Act 2006
AND
IN THE MATTER OF the bankruptcy of A M Krukziener
BETWEEN ANDREW MARK KRUKZIENER Judgment Debtor
WITHOUT NOTICE THE COMMISSIONER OF INLAND REVENUE
Judgment Creditor
Hearing: 11 February 2010
Counsel: N Malarao for Judgment Creditor
L Herzog for Judgment Debtor
Judgment: 17 February 2010 at 11:00 am
JUDGMENT OF ASSOCIATE JUDGE BELL
[on application to set aside bankruptcy notice]
This judgment was delivered by me on 17 February 2010 at 11:00 am
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………….
Solicitors/Counsel:
Meredith Connell, PO Box 2213, Auckland
Knight Coldicutt, Private Box 106214, Auckland City
L Herzog, PO Box 1001, Auckland
A M KRUKZIENER V THE COMMISSIONER OF INLAND REVENUE HC AK CIV-2009-404-005101 17
February 2010
[1] The Commissioner of Inland Revenue served a bankruptcy notice on
Mr Krukziener on 12 October 2009. Mr Krukziener filed an application to set aside the notice on 26 October 2009.
[2] The judgment on which the notice is founded is for $575,000. It is a consent judgment dated 3 June 2009 entered in settlement of proceedings which the Commissioner had taken against Mr Krukziener as director of A K Oriental Ltd (in liquidation). In that case, the Commissioner had alleged breaches of ss 131, 133,
134, 135, 136 and 137 of the Companies Act 1993. Relief was sought under s 301
of the Companies Act 1993. For each cause of action, the Commissioner, amongst other things, sought an order under s 301 requiring Mr Krukziener to contribute such sum to the assets of AK Oriental Ltd as the Court considered just.
[3] In his application Mr Krukziener says that under s 17(1)(d) of the Insolvency Act he has a counterclaim that exceeds the amount of the judgment and which he could not have set up in the Commissioner’s proceeding against him. In his affidavit in support of the application, Mr Krukziener alleges:
(1) He and other entities associated with him had been subject to a series
of unfounded and vexatious rulings by the Commissioner over a number of years.
(2) These include:
(i) an unsuccessful attempt to remove him as a company director;
(ii) inappropriately giving information to the media in breach of
s 81 of the Tax Administration Act;
(iii) a proceeding against him under s HK11 of the Income Tax
Act;
(iv) withholding GST in Peacock Street Trust, a matter later overturned;
(v) withholding GST in St Heliers No. 1 Ltd.
[4] He says that the conduct of the Commissioner had started with the conclusion
of his Metropolis project in 2000 arising out of GST issues. According to Mr Krukziener, he was right but it made the Inland Revenue Department determined to put him out of business. His affidavit mentions certain accounting and legal advisers
who are said to have made sympathetic noises about the IRD’s treatment of him. He complains about steps the Inland Revenue is currently taking against him to assess him for income tax in respect of loans he has received from the various entities associated with him. This had led to a proceeding in the Taxation Review Authority heard in November 2009. At the time of swearing his affidavit, the decision of the Taxation Review Authority had not been delivered. Mr Krukziener says in his affidavit that the Commissioner of Inland Revenue and officers (not named) are liable for misfeasance in public office. He claims that they have sought to unfairly use him as an example for their own ends without any reference to the reality of his tax position. He says he has been subjected to significant costs in defending unfounded and vexatious assessments and that the wrongful retention moneys has starved his business of cashflow. He also alleges damage to his reputation. He says that once the Taxation Review Authority gives its decision, he will be in a position to fully quantify and articulate in detail his claim which will exceed the amount of the judgment debt. He concludes:
I believe that these actions are part of a concerted campaign to put me out of business by whatever means legitimate or otherwise at IRD’s disposal. These illegitimate actions clearly constitute misfeasance of public office.
[5] Aside from these allegations, the affidavit contains minimal evidence to support Mr Krukziener’s complaints.
[6] Evidence filed by the Commissioner shows that Mr Krukziener did challenge assessments by the Commissioner in the Taxation Review Authority, which gave its decision on 27 January 2010. The case went against Mr Krukziener. The Authority upheld assessments by the Commissioner that money he had received from his companies and other entities, described in accounts as loans, were income, not capital. The Authority found tax avoidance on the part of Mr Krukziener amounting
to an abusive tax position. The Authority upheld the Commissioner’s assessments for penalties for having taken an abusive tax position.
[7] The Commissioner says that the effect of this decision is that under the Commissioner’s assessments Mr Krukziener owes income tax and related interest and penalties for substantial amounts – far more than the amount of judgment in the bankruptcy notice.
[8] Mr Krukziener has lodged an appeal in this Court against the decision of the Taxation Review Authority. I was advised that the first case management conference for the appeal is on 9 March 2010. For Mr Krukziener, Mr Herzog asked for an adjournment of the application to set aside, apparently with a view to keeping the bankruptcy notice in suspension pending the appeal. Mr Herzog contended that the adjournment was necessary, because success on the appeal would give Mr Krukziener a foundation for his allegations of misfeasance in public office.
[9] Mr Malarao, for the Commissioner, opposed and sought an immediate determination of the application to be set aside. He submitted that the allegations now made by Mr Krukziener could have been raised in the High Court proceedings
in which judgment was given, but had not been; that there was no basis for the allegations; and that postponing the matter pending the appeal against the findings of the Taxation Review Authority would not serve any useful purpose.
[10] It would not be safe to accept the Commissioner’s argument that the matters Mr Krukziener now raises were counterclaims that could have been raised in the proceedings brought against Mr Krukziener under s 301 of the Companies Act. Effectively, when a creditor brings an application for relief under s 301, he is bringing the proceeding for the benefit of all the creditors of a company in liquidation. Provision is made in s 301 for relief to be made in favour of the company generally. Admittedly, in its discretion the Court may also give relief in favour of an individual creditor, but such relief is more likely when the creditor is perhaps the only creditor of the company in liquidation. In this case, the Commissioner’s claim in the AK Oriental Ltd (in liquidation) case expressly sought relief by way of provision for the pool of creditors generally, in addition to a plea for relief for the Commissioner alone.
[11] So a claim by Mr Krukziener in person against the Commissioner for misfeasance in public office in a claim by the Commissioner against Mr Krukziener under s 301 of the Companies Act does not have the degree of mutuality required under ss 17(1)(d)(ii) and (7) of the Insolvency Act 2006 and r 24.10 of the High Court Rules. In Re Elvin ex parte Sandilands [1990] 3 NZLR 124, Gallen J said at 126–127 about s 19 of the Insolvency Act 1967:
It seems to me that s 19 for its operation depends upon a degree of mutuality. There must be some coincidence, some nexus or correlation between the circumstances out of which the opposing claims arise, some relationship between the parties and this must to some extent be a pragmatic decision which needs to be considered in relation to each particular case. I do not think that the decisions as to the nature of counter-claims, set-offs or cross- claims in other contexts, necessarily assist. The purpose of the section is to deal with a lis which exists as between two comparable persons. Clearly it would be unjust if one having succeeded in obtaining a judgment against another, were able to enforce that without reference to other related claims which might substantially reduce the obligation to pay.
[12] The difficulty is that any liability of the Commissioner for damages to Mr
Krukziener for alleged misfeasance could not be used to counter a claim under s 301
of the Companies Act brought for the benefit of the company’s creditors generally.
[13] Further, even if any mutuality issues were overcome, it seems inevitable that
on any counterclaim Mr Krukziener might have filed in the Commissioner’s proceedings under s 301, the Court would have ordered a separate trial of Mr Krukziener’s counterclaim under r 5.58(2) of the High Court Rules. The issues were
so far apart that Mr Krukziener’s counterclaim would have impeded the efficient disposal of the Commissioner’s application under s 301 if the two had been run together. While this case would not come exactly within r 5.61 of the High Court Rules, the purpose of that rule (payment and refunds of taxes are kept separate from other proceedings and proceedings by one arm of the government are not to be cluttered with counterclaims in respect of another arm) is a useful pointer to separating the Commissioner’s proceeding under s 301 of the Companies Act as an unsecured creditor of A K Oriental Ltd from Mr Krukziener’s possible counterclaim against the Commissioner in his statutory role as collector of taxes.
[14] The Commissioner is on stronger ground with his other two reasons for opposition. Mr Krukziener’s hope that success on his appeal against the decision of the Taxation Review Authority will give him the leg up that he seeks to mount his claim against the Commissioner is forlorn. Even if Mr Krukziener were to succeed
in his appeal, all he will have established is that the Taxation Review Authority erred
in law in upholding the Commissioner’s position. However, success on the appeal will not establish that the Commissioner and his officers abused their powers in assessing Mr Krukziener for tax. The very fact that the Taxation Review Authority
upheld the Commissioner’s assessments is a strong pointer to the fact that the Commissioner was acting properly and within the scope of his statutory role, even if the Authority’s decision were to be reversed on appeal. Success on appeal for Mr Krukziener will reduce his income tax liabilities arising out of the decision of the Taxation Review Authority, but it will not increase his chances on his alleged counterclaim against the Commissioner.
[15] Further, I give no weight at all to Mr Krukziener’s allegations against the
Commissioner. These allegations have to be seen for what they are: delaying tactics
by a judgment debtor. Mr Krukziener is an experienced businessman who has undertaken major and significant property developments. It is normal that in the course of that business, significant tax issues will arise. It is not surprising that there may be differences between the views that Mr Krukziener and those advising him take as to his liabilities and the position taken by the Commissioner and his officers. Mr Krukziener is not the first taxpayer to respond to the attentions of the Commissioner and his officers with allegations of vendetta. But none of this and nothing that Mr Krukziener has put in his affidavit is evidence that the Commissioner or his officers have acted in abuse of their powers so as to make them liable for misfeasance in public office. Mr Krukziener’s allegations against the Commissioner in his affidavit are of the sort where uncritical acceptance is not required, as indicated by the Privy Council in Eng Mee Yong v Letchumanan [1980] AC 331 at 341:
Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.
[16] Mr Krukziener’s allegations lack sufficient prima facie plausibility to merit further investigation as to their truth.
[17] It needs to be remembered that actions for abuse of public office are rarely successful. The award of indemnity costs in Three Rivers Council v The Governor and Company of the Bank of England [2006] EWHC 816 is a warning about the
dangers of suing for abuse of public office without a strong case. Extreme allegations of the sort raised by Mr Krukziener, without adequate supporting evidence, should not be allowed to stand in the way of a judgment creditor wishing to enforce a judgment by way of a bankruptcy notice. Mr Krukziener has not shown that he has a genuine triable case against the Commissioner.
[18] For these reasons I dismiss the application to set aside the bankruptcy notice.
[19] I make the following orders:
a) The application to set aside the bankruptcy notice is dismissed;
b)I award costs of $1760 on the 2B scale to the Commissioner plus disbursements fixed by the Registrar.
R M Bell
Associate Judge
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