Mawhinney v Commissioner of Inland Revenue
[2017] NZHC 2195
•8 September 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2012-404-003985 [2017] NZHC 2195
BETWEEN PETER WILLIAM MAWHINNEY AS
TRUSTEE OF THE FOREST TRUST Plaintiff
AND
THE COMMISSIONER OF INLAND REVENUE
Defendant
Hearing: 31 August 2017 Appearances:
P W Mawhinney (Self-represented Plaintiff) in Person
H C J Salisbury and C L Russell for the DefendantJudgment:
8 September 2017
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 8 September 2017 at 4.30 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Crown Law, Wellington
Copy To: P W Mawhinney, Auckland
MAWHINNEY v THE COMMISSIONER OF INLAND REVENUE [2017] NZHC 2195 [8 September 2017]
Introduction
[1] On 4 July 2014, Mr Mawhinney was ordered to pay security for costs in the sum of $40,000. The proceeding was stayed pending payment being received. That decision was upheld on review. No payment has been received and Mr Mawhinney has not taken any other steps to progress the proceeding.
[2] The Commissioner of Inland Revenue applies for an order that unless Mr Mawhinney pays the $40,000 within 14 days, his proceeding shall be struck out, and he must pay the Commissioner’s costs of the litigation.
[3] Mr Mawhinney opposes the application. He expects to receive funds in the near future from the harvest of forestry crops, and once litigation between another trust, the Doug Vesey Trust, and the Commissioner is resolved.
History of the proceeding
[4] Mr Mawhinney’s first statement of claim was filed on 12 July 2012. He sought, as trustee of the Forest Trust, damages or compensation of over $5 million from the Commissioner of Inland Revenue.
[5] The claim arises out of a decision of the Commissioner to disallow a GST refund of approximately $67,000. Mr Mawhinney also filed an application for summary judgment seeking approximately $600,000 for GST refunds withheld by the Commissioner.
[6] In December 2013, Mr Mawhinney filed an amended statement of claim which was 156 pages long and included additional causes of action alleging statutory entitlement and application for judicial review. That was further amended in February 2014. The second amended statement of claim is 188 pages long and includes another cause of action, which purports to be a challenge under Part 8A of the Tax Administration Act 1994.
[7] The Commissioner applied for security for costs of $40,000 and sought that the proceeding be stayed until the sum was paid or security given. The Commissioner also sought to strike out parts of Mr Mawhinney’s statement of claim.
[8] By judgment dated 4 July 2014, Associate Judge Christiansen determined the Commissioner’s application.1 The Associate Judge held that the Trust and Mr Mawhinney were impecunious. He found that the security sought of $40,000 was reasonable and it could not be said that it had been calculated to stop the claim from being pursued. In relation to the merits of the claim, the Associate Judge stated:2
It is clear that a considerable factual enquiry will be required. But, it does appear that a number of the pleaded causes of action face significant hurdles.
[9] The Judge ordered security for costs in the sum of $40,000 to be paid into Court to be held pending determination of the proceeding. The proceeding was stayed until that payment was made.
[10] Mr Mawhinney applied to review that decision. In a judgment dated
3 December 2014, Brewer J held that the Associate Judge had not made any error in the exercise of his discretion.3 At the review hearing, Mr Mawhinney suggested that the security could be provided by way of a second mortgage over a property. Brewer J noted that he could apply to the Associate Judge to vary the order to allow that to happen.4 This did not occur.
[11] The proceeding has been stayed since the order made by the Associate Judge in 2014. The current application for an unless order was filed and served on 16 May
2017.
1 Mawhinney v Commissioner of Inland Revenue [2014] NZHC 1554.
2 At [67].
3 Mawhinney v Commissioner of Inland Revenue [2014] NZHC 3067, (2014) 25 NZTC 21-114.
4 At [36].
Admissibility of Mr Mawhinney’s affidavits
[12] The Commissioner objects to Mr Mawhinney’s second to fourth affidavits being read. Those affidavits were originally served as unsworn affidavits, outside the Court ordered deadline, and shortly before the initial hearing of the application.
[13] The initial hearing date was adjourned due to a power cut. The Commissioner has had an opportunity to read and consider the affidavits which were subsequently served in sworn form. There is accordingly no prejudice to the Commissioner in permitting the affidavits to be read. Furthermore, the application is for an order which, if granted, is likely to result in the proceeding being struck out. The interests of justice weigh in favour of receiving and reading the affidavits and I order accordingly.
Relevant legal principles
[14] The power to make an unless order arises under r 7.48(2) which empowers a
Judge to make any number of orders so as to enforce an interlocutory order.
[15] In SM v LFDB, the Court of Appeal set out the relevant principles to apply to unless orders.5
(a) As an unless order is an order of last resort, it is properly made only where there is a history of failure to comply with earlier orders.
(b)An unless order should be clear as to its terms. That is, it should specify clearly what is to be done, by when and what is the sanction for non-compliance. That sanction should be proportionate to the default.
(c) The sanction will apply without further order if the party in default does not comply with the order by the time specified. However, the party in default may seek relief by application to the Court.
(d)Justice may require that the party in default be relieved of the consequences of the unless order where the Court is satisfied that the breach resulted from something for which that party should not be held responsible. The party should not assume that belated compliance will suffice.
5 SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [31].
(e) Where the unless order has been deliberately breached – that is, flouted – it is difficult to conceive of any situation where the interests of justice would require granting the flouter relief from the sanction imposed, notwithstanding belated compliance with the order.
(f) In deciding whether or not to excuse breach of an unless order the question for the Judge is: what does justice demand in the circumstances of this case? Considerations in answering that question include:
(i) The public interest in ensuring that justice is administered without unnecessary delays and costs.
(ii) The interests of the injured party, in particular in terms of delay and wasted cost.
(iii) Any injustice to the defaulting party, although that consideration is likely to carry much less weight in the circumstances than considerations (i) and (ii).
[16] There is jurisdiction to dismiss a proceeding if a plaintiff fails to provide the security ordered. However, in general, a plaintiff is given a reasonable opportunity to comply with an order for security for costs before the proceeding is struck out.6 In Parlane v Hayes, the Court of Appeal said that to compromise irretrievably a party’s right to a merits judgment for failure to meet some procedural obligation is a serious step that should be taken only when such is necessary to do justice to the other interests at stake.7
Should the unless order be made?
[17] The failure to progress the proceeding by complying with the security for costs order means that the proceeding has been stayed for over three years. By any measure that is a reasonable time within which to comply with an order to provide security for costs.
[18] The delay in progressing the proceeding is prejudicing the Commissioner. The longer the proceeding is stayed, the more difficult it is for staff to recall key events, some of which occurred in 2009. Furthermore, whilst the proceeding
remains on foot the Commissioner must ensure that there are sufficient staff
6 Jagwar Holdings Ltd v Fullers Corp Ltd (1991) 4 PRNZ 577 (HC); J& T Christie Ltd (in rec) v
Westpac Merchant Finance Ltd HC Dunedin CP128/91, 17 April 1997.
7 Parlane v Hayes [2015] NZCA 341 at [31].
members to deal with the litigation, or employ and train additional staff should those who are currently engaged with the proceeding move on.
[19] There is a strong public interest in ensuring the expeditious resolution of legal proceedings. Litigation which lies dormant in our court system does so at a public cost. The delays caused by Mr Mawhinney’s failure to comply with the security for costs order is at odds with the clear public interest in ensuring the just, speedy and inexpensive determination of a proceeding.
[20] There is little prospect of the stay being lifted and the proceeding progressing in the short term. I do not share Mr Mawhinney’s optimism about a potential source of funds becoming available to him to meet the security for costs order, or to seek a variation of that order, in the near future.
[21] Mr Mawhinney has not produced corroborating evidence to substantiate his claim to have access to funds from the sale of logs in April 2018. There appears to be a dispute with Auckland Council as to whether the logs may be harvested without a resource consent. That dispute is currently the subject of Environment Court proceedings.
[22] Even if Mr Mawhinney has a right to harvest three blocks, each comprising two hectares, without resource consent, as he submits, he would still need other consents and approvals from Auckland Council before harvesting could commence. Even then, I am not persuaded that the sale of logs would reap the sum of $56,400 as Mr Mawhinney submits. That sum has been derived from a per hectare figure calculated over a 53.1 hectare block. It does not necessarily follow that the same per hectare rate will apply to a six hectare block.
[23] Furthermore, I am not persuaded that any litigation between the Doug Vesey Trust and the Commissioner will result in a source of funds for Mr Mawhinney. There is no undertaking or other legally enforceable agreement by which the Doug Vesey Trust agrees to advance sums to Mr Mawhinney, and so no certainty at all that will occur. Furthermore, although Mr Mawhinney advises that there is a Taxation Review Authority hearing set down for December 2017, the prospect of
appeals and further litigation around the claim means that, even if the Doug Vesey Trust should be successful (which the Commissioner says is unlikely), any funds are unlikely to be available in the short term.
[24] Mr Mawhinney does not have any other avenues by which he can access the necessary funds. Mr Mawhinney is an undischarged bankrupt. The property which he suggested could be made subject to a second mortgage to secure the security for costs before Brewer J, has subsequently been sold by way of mortgagee sale. That sale has been the subject of two judgments in this Court.8
[25] Finally, I take into account that the merits of Mr Mawhinney’s claim have already been assessed as weak by Associate Judge Christiansen. That view was shared by Brewer J who observed that Mr Mawhinney appeared to be motivated more by passion than objective assessment.9
[26] This case is not dissimilar to Harrison v Harrison, where an unless order was made requiring the plaintiff to comply with the security for costs order within 15 working days or her proceeding would be struck out.10 In Harrison, the proceedings had been stayed for a period of nearly four years, but the plaintiff had continued to put the defendants to further expense by bringing various applications, including applications to rescind interlocutory orders. The Associate Judge concluded that the time had arrived where the plaintiff had to be presented with a clear option of either complying with the security for costs order or alternatively seeing her proceeding
struck out.
[27] In this case, the making of the unless order is highly likely to result in the proceeding being struck out. That is a serious consequence. The making of an order in those circumstances is not an order to be made lightly. However, the order to provide security for costs strikes a balance between the rights of plaintiffs to bring and progress their proceeding, and the rights of defendants to be protected from
unmeritorious claims brought by impecunious plaintiffs. There is a public interest in
8 Nags Head Horse Hotel Ltd v Mawhinney [2017] NZHC 401, per Moore J; Mawhinney v Nags
Head Horse Hotel Ltd [2017] NZHC 455, per Lang J.
9 Mawhinney v Commissioner of Inland Revenue, above n 3, at [32].
10 Harrison v Harrison [2017] NZHC 598.
ensuring that justice is administered without unnecessary delays and costs. On balance, I consider the interests of justice require Mr Mawhinney to be afforded one final opportunity to pay the security for costs order or have his claims struck out.
[28] That leaves the question of the length of time to comply with the unless order. Mr Mawhinney submits that if an order is to be made, he should be given another year to comply. I consider a further year to be too long. However, given the serious consequences of non-compliance, I intend to give Mr Mawhinney 30 days from the date of this judgment within which to comply.
Result
[29] The application for an unless order is granted.
[30] Unless the plaintiff pays the security for costs in the sum of $40,000 into Court within 30 days from the date of this judgment, the plaintiff’s proceedings shall be struck out and the plaintiff must pay the defendant’s costs of the proceeding.
[31] As the successful party, the Commissioner is entitled an order of costs on the application. I certify for one counsel only.
Edwards J
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