Peebles v Attorney-General

[2014] NZHC 3040

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-1196 [2014] NZHC 3040

IN THE MATTER

of the Judicature Amendment Act 1972

BETWEEN

GREGORY ALAN PEEBLES and CLIVE RICHARD BRADBURY

First Plaintiffs

BEN NEVIS FORESTRY VENTURES LIMITED (in liquidation) and BRISTOL FORESTRY VENTURE LIMITED (in liquidation)

Second Plaintiffs

AND

ATTORNEY-GENERAL First Defendant

COMMISSIONER OF INLAND REVENUE

Second Defendant

Hearing:	On the papers
Counsel:	G J Judd QC for Plaintiffs R L Roff and S J Leslie for Second Defendant
Judgment:	02 December 2014

COSTS JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 2 December 2014 at 10 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:      Wynyard Wood, Auckland

Crown Law, Wellington

Counsel:       G J Judd QC, Auckland

Copy for:      Anderson Creagh Lai Ltd, Auckland

R A Edwards, Auckland

PEEBLES v ATTORNEY-GENERAL [2014] NZHC 3040 [2 December 2014]

[1]      In  October  2014  I  dismissed  the  Plaintiffs’ application  for  review  of  a decision by the Defendant Commissioner (“October judgment”).1     I said that my decision as to costs would follow, as it now does.

[2]      As the successful party, the Commissioner is entitled to an award of costs against the Plaintiffs.2    The Commissioner, however, seeks an award of indemnity costs, relying on High Court Rules, r 14.6(4)(a):

...

(4)      The court may order a party to pay indemnity costs if—

(a)       the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

...

[3]      The Commissioner submits that the Plaintiffs’ conduct is within r 14.6(4)(a) because they commenced this proceeding for an ulterior motive, misconducted themselves and their case was hopeless from inception.3    The Plaintiffs oppose an award  of  indemnity  costs  and  contend  that  their  conduct  does  not  fall  within r 14.6(4)(a).

[4]      After the hearing before me the Court of Appeal issued several judgments in other litigation between participants in the “Trinity scheme”, including the Plaintiffs, and the Commissioner.4     One of these, Ben Nevis Forestry Ventures Ltd v Commissioner  of  Inland  Revenue  [2014] NZCA 348, is of particular relevance because the Court discussed awards of indemnity costs. The parties filed written submissions regarding these judgments, which I have taken into account in this

decision.

1      Peebles v Attorney-General [2014] NZHC 2635, (2014) 26 NZTC 21-107.

2      High Court Rules, r 14.2(a).

3      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [29].

4      Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348, (2014)

26 NZTC 21-084; Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2014] NZCA 349, (2014) 26 NZTC 21-085; Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 350, (2014) 26 NZTC 21-086; and Accent Management Ltd v Attorney- General [2014] NZCA 351, (2014) 26 NZTC 21-087.

Background

[5]      The background to the proceeding is set out in my October judgment.5   What follows is sufficient to give the context for this decision.

[6]      In December 2013 the Commissioner commenced proceedings (“recovery proceedings”) against the First Plaintiffs, Messrs Peebles and  Bradbury, seeking judgment for substantial sums.6    The Commissioner has also applied for summary judgment on her claim.   The sums for which the Commissioner seeks judgment largely comprise amounts for which Messrs Peebles and Bradbury were assessed in

2002 and 2003 (“assessments”), plus penalties and interest.  In a judgment issued in

December 2008 the Supreme Court held that the assessments were correct (“2008

Supreme Court judgment”).7     The Plaintiffs have not paid the amounts assessed, hence the recovery proceedings.

[7]      In  February  2014  the  Court  directed  that  the  applications  for  summary judgment would be heard on 12 and 13 June 2014.   At about the same time the Plaintiffs wrote to the Commissioner seeking, amongst other things, withdrawal of the recovery proceedings.  The Plaintiffs attributed this request to what they said was

a fresh development in the form of the Court of Appeal’s decision in Sovereign.8

The Commissioner declined the request by letter dated 26 May 2014.

[8]      The Plaintiffs commenced this proceeding on 20 May 2014.  The gist of the Plaintiffs’ case as pleaded was, first, that the Commissioner was required to issue fresh assessments of their liabilities determined by reference to the accruals rules in subpart EH Income Tax Act 1994.  The Plaintiffs abandoned this first ground at the hearing before me.  Secondly, and this ground was pursued, the Plaintiffs alleged that the Commissioner had a duty to ensure that she did not to seek to recover more tax

than was properly payable.  The Plaintiffs alleged that by the recovery proceedings

5      Peebles v Attorney-General, above n 1, at [10]–[26].

6      Commissioner   of   Inland   Revenue   v   Peebles   HC   Auckland   CIV-2013-404-5133   and

Commissioner of Inland Revenue v Bradbury HC Auckland CIV-2013-404-5134.

7      Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009]

2 NZLR 289.

8      Sovereign Assurance Company Ltd v  Commissioner of Inland Revenue [2013] NZCA 652, (2013) 26 NZTC 21-056.

the Commissioner was seeking to recover more tax than was properly payable, that she was in breach of her duty and accordingly had made an error of law.

[9]      Given the issues raised, it was decided that the best course was for the Court to hear the Plaintiffs’ application for review in the time allocated for the recovery proceedings,  and  to  adjourn  the  recovery  proceedings  to  a  later  date,  now

16 February 2015.

[10]     I accepted the Commissioner’s submission that she did not owe the duty that the Plaintiffs alleged and dismissed the application for review.   I did so because I considered   the   alleged   duty   to   be   inconsistent   with   the   scheme   of   the Tax Administration Act 1994 (“TAA”).

Commissioner’s submissions

[11]     The Commissioner submits:

(a)      that the Plaintiffs commenced this proceeding for an ulterior purpose, that is to delay the Commissioner in recovering the sum due from the Plaintiffs;

(b)that the Plaintiffs’ conduct is, in fact, misconduct which has wasted the time of the Court and of the Commissioner; and

(c)       that the proceeding was hopeless from the outset.

[12]     I accept the Commissioner’s submission that the Plaintiffs’ case was hopeless from inception and, from that, infer the proceeding was brought for the ulterior purpose referred to in [11](a) above.  It is unnecessary for me to consider [11](b) as a separate ground.

[13]     For the reasons I gave in my October judgment, the 2008 Supreme Court judgment had the effect of fixing Mr Peebles’ and Mr Bradbury’s liabilities, and each became obliged to pay the sum assessed.  That the effect of the 2008 Supreme Court judgment was to oblige the taxpayers to pay the sum assessed would have been

known  to  Mr Peebles  and  Mr  Bradbury  by  the  time  they  commenced  this proceeding.   The same point had been made as recently as September 2013 by Associate Judge Faire (as he then was) in declining an application by the Second Plaintiffs to set aside a statutory demand that the Commissioner had served.  One of the issues that arose on that application was whether the Second Plaintiffs owed a debt  to  the  Commissioner  in  respect  of  sums  assessed  for  the  1998  tax  year. Associate Judge Faire confirmed that indebtedness by reference to the 2008 Supreme

Court judgment and provisions of the TAA.9

[14]     The Plaintiffs would also have been familiar with the TAA at the time they commenced this proceeding, given the extensive litigation between the Plaintiffs and/or  other  participants  in  the  Trinity  scheme  on  the  one  hand   and  the Commissioner on the other.

[15]     The Commissioner has been required to commence the recovery proceedings only because Messrs Peebles and Bradbury have defaulted on their obligation to pay what was confirmed as owing in 2008.  I consider it hopeless for a taxpayer in those circumstances to contend that, prior to taking steps to collect the tax assessed, the Commissioner has a duty to consider whether the amount assessed is due.

[16]     I conclude that the case was hopeless from inception and that this must have been known to the Plaintiffs when they commenced this proceeding.   From that I infer that the Plaintiffs brought this proceeding for an ulterior motive, specifically to delay the Commissioner.

Result

[17]     Given  these  conclusions  I  am  satisfied  that  the  Plaintiffs  have  acted vexatiously,   frivolously,   improperly,   or   unnecessarily   in   commencing   this

proceeding.  I award indemnity costs against them accordingly.

9      Bristol Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 2384, (2013) 26

NZTC 21-031; aff ’d Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue, above n
4.

[18]     The Second Plaintiffs are now in liquidation.  They have notified the Court that they have instructed new solicitors and counsel. A copy of this judgment is to be delivered to them.

....................................................

M Peters J