Muir v Commissioner of Inland Revenue
[2015] NZHC 2855
•17 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-1132 [2015] NZHC 2855
UNDER the Administration Act 1994 IN THE MATTER
of an application for strike out of all proceedings transferred and consolidated in the High Court
BETWEEN
GARRY ALBERT MUIR FIRST PLAINTIFF
CLIVE RICHARD BRADBURY Second Plaintiff
GREGORY ALAN PEEBLES Third Plaintiff
PETER ARNOLD MAUDE Fourth plaintiff
Plaintiffs continued over
AND
COMMISSIONER OF INLAND REVENUE
Defendant
On the papers Counsel:
GA Muir first plaintiff in person
No appearance for fifth, sixth, seventh, ninth and tenth plaintiffs TGH Smith and SJ Leslie for Commissioner of Inland Revenue No appearance by Official Assignee in respect of estates of
Messrs Bradbury and Peebles
Judgment:
17 November 2015
JUDGMENT OF FAIRE J
This judgment was delivered by me on 17 November 2015 at 4:00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Muir v Commissioner of Inland Revenue [2015] NZHC 2855 [17 November 2015]
Plaintiffs continued
ACCENT MANAGEMENT
LIMITED Fifth Plaintiff
BEN NEVIS FORESTRY VENTURES LIMITED Sixth Plaintiff
BRISTOL FORESTRY VENTURE LIMITED
Seventh Plaintiff
HILLVALE HOLDINGS LIMITED Eighth Plaintiff
LEXINGTON RESOURCES LIMITED
Ninth Plaintiff
REDCLIFFE FORESTRY VENTURE LIMITED Tenth Plaintiff
WAIKATO RESIDENTIAL PROPERTIES LIMITED Eleventh Plaintiff
CIV-2011-404-1132
IN THE MATTER of Section 26A Taxation Review
Authority
IN THE MATTER of Decision of Taxation Review
Authority [2011] NZTRA 2
BETWEEN GARRY ALBERT MUIR Appellant
ANDTHE COMMISSIONER OF INLAND REVENUE Respondent
Background
[1] On 22 April 2015 I issued a judgment in which I struck out the pleadings of the first, fourth, eighth and eleventh plaintiffs on the application of the
Commissioner.1 In that judgment I also dismissed two appeals brought by the first plaintiff, who was appellant, against the decision of the Taxation Review Authority.
[2] At the commencement of the hearing I granted leave to discontinue the challenge proceedings filed by the fifth, ninth and tenth plaintiffs. That leave was granted formally on 9 February 2015. Those companies were placed into liquidation on 5 December 2014. Costs were reserved.
[3] The sixth and seventh plaintiffs were placed into liquidation of 14 October
2014. They filed a notice of discontinuance on 16 December 2014 with all appropriate consents as required by r 15.20 attached. In short, the notice of discontinuance took effect from 16 December 2014.
[4] The second and third plaintiffs were both adjudicated bankrupt. In the case of the second plaintiff, his statement of claim was struck out on 5 February 2015 on the application of the Official Assignee acting in his bankrupt estate. Costs were reserved. In the case of the third plaintiff, the strike out application did not proceed against him because of his pending debtor’s application for adjudication. That position was confirmed in my minute of 5 February 2015 and on the basis that costs in relation to the plaintiff would be reserved. Confirmation of his adjudication was later received and his proceeding was struck out with costs reserved.
[5] The position of the liquidators of the fifth, sixth, seventh, ninth and tenth plaintiffs is that they consent, in terms of s 248(1)(c) of the Companies Act 1993 for the continuation of the proceedings for the purpose of determining costs only. The liquidators neither consent to, nor oppose, the Commissioner’s application for indemnity costs for steps taken up until the date of liquidation of each company. For steps taken subsequent to liquidation they do oppose any claim for indemnity costs.
[6] I am advised that the Official Assignee in respect of the bankrupt estates of the second and third plaintiffs, do not oppose leave being granted pursuant to s 76(2) of the Insolvency Act 2006 for the purposes of having costs determined and do not seek to be heard in respect of the substantive cost decision.
[7] In my judgment I recorded that the primary basis for the strike out application. I concluded:2
[39] …that the current plaintiffs are estopped from disputing the determinations of the Supreme Court judgments as binding on them as if they were parties to those proceedings. They therefore are estopped from raising arguments concerning the treatment of the Trinity Scheme and appropriate assessments.
[40] This is a clear case of an abuse of process which must not be allowed to continue. It may also be viewed as a collateral attack on the final decisions of the Supreme Court and is equally an abuse of process on that ground.
The Commissioner of Inland Revenue’s application for costs
[8] At the conclusion of my judgment I recorded the following on the question of costs:
Counsel and Dr Muir were agreed that costs should be reserved so that the parties could attempt to agree and failing agreement memoranda in support, opposition and reply should be filed and served at seven-day intervals. I accordingly reserve costs and order that same be resolved as set out.
[9] Memoranda have been filed on behalf of the Commissioner of Inland Revenue, counsel with instructions from the liquidators of the fifth, sixth, seventh, ninth and tenth plaintiffs and the first plaintiff, who is also the appellant in the second proceeding.
[10] In the Commissioner’s memorandum dated 29 April 2015 application was made for indemnity costs against all plaintiffs and the appellant in the sum of
$186,871.50, plus disbursements, which includes a GST figure of $12,187.96. Counsel’s memorandum also included a schedule which gives a breakdown of the calculation for costs having regard to Schedules 2 and 3 and applying Category 2
Band B. The total costs that would be payable according to those schedules is
$19,900. Counsel’s schedule shows a claim for disbursements inclusive of GST of
$6,089.48.
[11] The position adopted by the liquidators of the fifth, sixth, seventh, ninth and
tenth plaintiffs is that they neither consent nor oppose the Commissioner’s
application for indemnity costs for steps taken up until the date of liquidation of each company, but thereafter oppose. In particular, for the liquidators it is submitted that no steps in the proceedings were taken following the companies’ liquidations and therefore there is no basis that would warrant an order for indemnity costs following the appointment of the liquidators. As a proposition that has not been specifically addressed in any of the further memoranda that have been filed on behalf of the Commissioner of Inland Revenue.
[12] As a matter of logic, however, the position of the plaintiffs who have now been adjudicated bankrupt would seem to be in the same situation as those plaintiff companies which are in liquidation.
[13] Mr Muir, in the first of his several memoranda in opposition, attacks the basis for the conclusions I have recorded in my judgment and, in particular, those which are reproduced in [7] of this judgment. He further submits that no cost award should be made because no valid assessment exists. Second, he submits that if an award is made, the appropriate band is Category 2 Band B, but that any award should lie in court pending an appeal. More particularly, he submitted that my judgment affected a change in the law and there was no sound basis for an award of indemnity costs. In addition, Mr Muir challenged the calculation of indemnity costs. He submitted that, having regard to the fact that there was a two-and-a-half day hearing required, with five prior conferences, some by telephone and some also relating to other proceedings and/or discontinuances by other parties the figure of $186,000 for actual costs, unsupported by any evidence or breakdown, looks excessive. He also sought to draw a distinction in respect to Mr Maud’s position, Mr Maud being the fourth plaintiff in regard, Mr Muir said, to Mr Maud’s minimal investment and suggested that an apportionment of liability in respect of Mr Maud be made having regard to the size of the actual investment representing approximately three hectares of the
93 hectares which is in contention in the challenge proceeding. He invited that to be based on 3.3 per cent.
[14] The memoranda filed by counsel for the liquidators of the companies and Mr Muir brought in a response in reply from the Commissioner in which the following points were noted:
(a) The Commissioner abides the court’s decision on whether indemnity costs should be awarded against the fifth, sixth, seventh, ninth and tenth plaintiffs for costs incurred between their being put into liquidation and their discontinuance. Counsel submitted an amended Schedule A showing the Commissioner’s costs as at the date of liquidation orders totalling $62,343 plus GST of $5,665.88 or a total of $68,008.88 plus disbursements of $5,295.20 plus GST on disbursements of $794.28, making a total of $6,089.48.
(b)The Commissioner further submitted that the costs claimed were costs incurred after the statements of claim were filed and did not include costs in the Taxation Review Authority.
(c) The Commissioner further submitted that there is no basis for distinguishing Mr Maud’s position because he had adopted Mr Muir’s written and oral submissions so the exercise that had to be undertaken was exactly the same for Mr Maud as it was for all other plaintiffs.
[15] The Commissioner’s reply memorandum provoked a further response from Mr Muir by memorandum dated 25 May 2015 in which he complained, in my view justifiably about the lack of any evidence to support the amount claimed. In particular, he noted a refusal to disclose the invoices which are said to make up the new amount claimed and there were other specific complaints made which I need not detail.
[16] Reviewing the matter I was concerned about the information that had been provided and issued a minute of 29 May 2014. For the purposes of this judgment I repeat what I recorded in that minute as follows:
[5] I now consider the issues raised by the memoranda that have been filed in relation to the costs orders I made in the 22 April judgment. These issues relate to quantum of costs and whether the Commissioner has provided sufficient information for the Court to determine the quantum.
[6] The usual practice is for the party seeking indemnity costs to provide an affidavit which details how the costs were incurred. This affidavit must show:
(a) A breakdown of costs in terms of the house spent on the particular litigation;
(b) A breakdown of the hourly rates charged for each litigation; (c) A specific breakdown of disbursements for each litigation;
(d) Any additional evidence which shows that the rate charged and the work undertaken were reasonable.
[7] Ultimately the Commissioner should show that the quantum of costs it seeks to recover is objectively reasonable for the number of hours spent, the skill of counsel involved and the complexity of the case. What is required is a sufficient description of the work undertaken so that it discloses that it is work reasonably undertaken for the step and which also discloses that the step is a reasonable step taken in relation to the recovery of the outstanding debt in this case. The costs which the Commissioner seeks to recover must be shown in relation to each litigation.
[8] Counsel may be assisted by my judgment in Crown Money
Corporation Ltd v Grasmere Estate Trustco Ltd.
[9] So that the court has adequate information on the quantum issue I
order as follows:
(a) The Commissioner shall file and serve any further memoranda and affidavit on the quantum of indemnity costs by 19 June 2015;
(b) The plaintiffs shall file and serve any memoranda and affidavits in response by 3 July 2015;
(c) Any reply memoranda shall be filed and served by 10 July
2015.
[10] The Case Officer responsible for this file shall refer it to me for consideration of costs.
[17] The Commissioner filed a memorandum in response to my minute on 22 June
2015. It is dated 19 June. Also filed with that memorandum was an affidavit of Mr MA Cook of Lower Hutt, a solicitor employed by the Commissioner of Inland Revenue as a manager litigation in the Litigation Management Unit of the Department. A number of matters arise from the memorandum and affidavit. First, the Commissioner advises that she abides the decision of the court as to whether costs should be awarded between the appointment of the liquidators and the time of their discontinuance. She also abides the court’s decision on whether GST should be part of an award of costs and disbursements.
[18] Further memoranda were filed.
[19] On 29 October 2015 I issued a minute as follows:
[1] Since my minute of 7 August 2015 I have received a further memorandum from Mr Muir of 14 August 2015. I regret that I was not able to return to this matter because of a trial commitment.
[2] I am not satisfied that it is appropriate to refer the quantification of costs to the National Standards Committee of the Law Society. It is a matter that must be determined by the court.
[3] I am further not satisfied that appropriate material has been placed before the court at this stage on which the court can assess the reasonableness of the claim for costs that has been made.
[4] I see no reason why copies of the invoices relied upon to support the Commissioner’s claim have not been provided by affidavit, which is both filed and served. I order that such invoices that are relied upon be produced by affidavit, which is to be filed and served within 14 days.
[5] I remain concerned as to the reasonableness of the charges made. It is, of course, the responsibility of counsel for the Commissioner to determine if any further evidence is placed before me on this aspect of the case. I record that the position is disappointing, having regard to the fact that I pointed out, in my minute of 29 May 2015, what was required and how it should be approached.
[6] I note in the Commissioner’s memorandum of 19 June 2015 that the statement is made
Whether GST should be awarded on costs and disbursements is a matter the Commissioner abides the court’s decision on. I
express my surprise at the approach adopted by the Commissioner
on this matter having regard to paragraph 9 of Mr Cook’s affidavit of
19 June 2015. That paragraph makes it plain that GST on the invoices is not a matter, after input tax deduction is taken into account, that the Commissioner has had to pay. Unless my understanding is incorrect, it is extraordinary that the Commissioner should seek to recover GST in these circumstances because, plainly, there has been no overall cost to the Commissioner in respect of this aspect. If my assumption is wrong, the response should be provided in the affidavit I have ordered to be filed and served in [4] above.
[7] A matter not specifically raised, although Mr Muir drew attention to Mr Maude’s position, is the effect of a cost judgment having regard to the application of r 14.14 of the High Court Rules. I invite counsel and Mr Muir to cover that aspect as well.
[8] I invite the Commissioner to respond by memorandum and affidavit covering the matters that I have set out in this minute within 14 days.
I invite Mr Muir to respond to such affidavit and memorandum from the Commissioner within a further seven days. I will then give further consideration to the matter.
[20] A memorandum was filed on behalf of the Commissioner and a reply memorandum was filed by Mr Muir on 16 November 2015.
[21] In her memorandum, the Commissioner’s counsel advised that she:
(a) Did not seek recovery of the GST figure;
(b)Did not waive privilege in respect of the fee accounts that had been issued to her; and
(c) Advanced a pragmatic solution seeking indemnity costs but calculated on a 2B basis uplifted by fifty per cent of scale, and being a total of
$32,088.75.
[22] Mr Muir’s memorandum:
(a) Criticised the approach adopted by the Commissioner and the lack of information provided; (b)
Submitted that the claim did not fall within r 14.6(3) as a claim for
increased costs; and (c)
Noted that no attempt had been made to deal with the multiple
plaintiff issue and the question of apportionment, which he submitted was called for having regard to r 14.14. [23]
The
Commissioner’s calculation based on Category 2 Band B, seeks
allowances for the filing of five memoranda for case management conferences, five appearances at case management conferences, the preparation of the application to strike out and an amended application, the preparation of written submissions, the preparation of a bundle of documents for the hearing, appearance of counsel based
on a hearing of 2½ days; appearance of second counsel for 1½ days, the cost of sealing and claims in respect of the commencement of an appeal.
[24] Of the claims made by the Commissioner based on Category 2 Band B, I do not allow the claim for the filing of the amended interlocutory application which arose for reasons set out in paragraph 9 of the memorandum of counsel for the Commissioner of 10 July 2014. Further, I do not allow the claim for second and subsequent counsel. I do not allow the claim for commencement of an appeal.
[25] The result is that when one calculates the attendances based on Category 2
Band B, and taking into account the matters that I have referred to, the figure for costs becomes $17,711. I should mention that is calculated based on steps taken as if there was one application. The result is there is no need to consider the r 14.14 issue because the numbers of claimants have not led to an increase in the amount assessed, applying Category 2 Band B.
[26] There is, however, a need to calculate the position that applies in respect of the companies that went into liquidation and the parties who were adjudicated bankrupt. Their involvement ceased primarily with the filing of the memoranda for the case management conferences, the appearances at the case management conferences and the filing of one interlocutory application. The allowance for the memoranda on that basis totals $3,980 and the amount for appearances totals $2,985. The amount for an allowance for one interlocutory application is $1,194. Accordingly, I assess that the costs for which the second, third, fifth, sixth, seventh, ninth and tenth plaintiffs are responsible for is $8,159 based on Category 2 Band B. These calculations are made before any consideration of an uplift is applied.
[27] I have also made no allowance for GST, having regard to the position taken by the Commissioner which, in my view, is appropriate as a claim for GST is not justified.
[28] For the reasons set out in my judgment of 22 April 2015 this case does call for consideration for indemnity costs in terms of r 14.6(4).3 I do not have before me
a basis for determining the reasonableness of those costs. As a cross-check I have considered the position as if it were a claim for increased costs and have applied the approach sanctioned by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd.4
That approach is justified having regard to r 14.6(3)(b)(ii) and (d) and the matters to which I have referred in [7]. The proceeding has been categorised as a Category 2 proceeding. The steps taken are all Band B steps. If one stands back and looks at how this litigation has proceeded an increase in the costs allowed under Category 2
Band B is clearly justified. That leads me to the position that an uplift of fifty per cent should be applied in respect of the costs to be paid by all plaintiffs and appellants and to the stage to which I have referred. The total costs payable is
$26,566.50, which applies a fifty per cent uplift to the figure that I have mentioned. The costs, however, payable by the second, third, fifth, sixth, seventh, ninth and tenth plaintiffs is limited to the sum of $12,238.50 for the reasons earlier referred to.
[29] So far as disbursements are claimed, these are to be fixed by the Registrar bearing in mind that I have made no allowance for second counsel so that disbursements connected with second counsel should not be allowed for, and a filing fee in respect of one strike out application only is allowed for.
[30] There is no need to consider separately the first plaintiff’s position as appellant because no additional steps in terms of Schedule 3 are required to be considered in respect of the appeals.
Result
[31] Judgment for costs is entered against the first, fourth, eighth and eleventh plaintiffs in the sum of $26,566.50 together with disbursements as fixed by the Registrar having regard to the rulings made in this judgment.
[32] Judgment for costs is entered against the second, third, fifth, sixth, seventh, ninth and tenth plaintiffs in the sum of $12,238.50, together with disbursements as fixed by the Registrar having regard to the rulings made in this judgment.
[33] For the avoidance of doubt, I order that the total amount for costs which the
Commission may recover from all parties referred to in this judgment is $26,566.60.
JA Faire J
Solicitors: Anderson Creagh Lai Ltd, Auckland (S Cogan) Commissioner of Inland Revenue, Wellington
Ministry of Business Innovation and Employment, Auckland (G Caro) To: GA Muir, Auckland
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