Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue

[2013] NZHC 3468

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3068 [2013] NZHC 3468

BETWEEN  REDCLIFFE FORESTRY VENTURE LIMITED

Plaintiff

ANDCOMMISSIONER OF INLAND REVENUE

Defendant

Hearing:                   On the papers

Counsel:                  KB Hetherington for plaintiff

RL Roff and SJ Leslie for defendant

Judgment:                18 December 2013

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on costs]

Solicitors:           Stainton Chellew, Auckland

Crown Law, Wellington

REDCLIFFE FORESTRY VENTURE LIMITED v COMMISSIONER OF INLAND REVENUE [2013] NZHC

3468 [18 December 2013]

[1]      In my judgment of 25 October 2013, I dismissed the plaintiff’s application to set aside a statutory demand for $819,268.18.   I ordered that the plaintiff pay that sum

within 10 working days of this judgment and should a default in payment be made, the defendant may make application to put Redcliffe Forestry Venture Ltd into liquidation.

[2]      I recorded the following in relation to costs:

I discussed the question of costs with counsel.  Both asked that I reserved costs.   I do so and invite counsel to agree.   In the event that they cannot agree, memoranda in support, opposition and reply shall be filed and served at  seven-day  intervals.     On  receipt  of  the  reply  memorandum,  the memoranda shall be referred to me for consideration of the appropriate order for costs.

[3]      Counsel are unable to agree.  The plaintiff accepts that costs on a 2B basis should be ordered in favour of the defendant.

[4]      The defendant says that costs on a 2B basis up until 12 September 2013 should  be ordered  and  thereafter,  either indemnity or increased  costs  should  be ordered.

[5]      The defendant adopts the stance that she does in reliance on the fact that on

12 September 2013 I delivered a judgment on the application of Bristol Forestry Venture Ltd and Ben Nevis Forestry Venture Ltd to set aside two statutory demands. The judgment dismissed the applications and made similar orders to the one made in the present case in reliance on s 291(1)(a) of the Companies Act 1993.

[6]      This case, like the Bristol Forestry Venture Ltd case, concerns investors from the Trinity scheme.  They are seeking to set aside the defendant’s statutory demand for assessments which were made in respect of the 1998 tax year. Those assessments

have been upheld by the High Court,1 the Court of Appeal2 and Supreme Court.3

1      Accent Management Ltd v Commissioner of Inland Revenue [2004] 22 NZTC 19,027 (HC).

2      Accent  Management  Ltd  v  Commissioner  of  Inland  Revenue  [2007]  NZCA  230,  (2007)

23 NZTC 31,323.

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

2 NZLR 289.

[7]      The defendant’s  submission  is  that  as  the  application  in  Bristol  Forestry Venture Ltd and Ben Nevis Forestry Venture Ltd failed, the outcome in respect of the present application was also one that would inevitably lead to failure so that the costs of the defended hearing were unjustified.   That position is supported by a letter which was sent by the defendant’s counsel to the plaintiff’s solicitors in which reference is made to my judgment in Bristol Forestry Venture Ltd v Commissioner of

Revenue of 12 September 2013.4   The letter drew attention to the fact that the facts

were materially similar.  If anything, the facts in support were not as strong.  In the instant case, there were no extant proceedings on which the plaintiff could rely in support of the argument that the debt is substantially disputed.

[8]      In both cases, the grounds cited in support were the same.  I dismissed each ground in the Bristol decision, as I did in the instant case.  I found that there was no basis  for  setting  aside  the  statutory  demand  in  reliance  on  s 290(4)(c)  of  the Companies Act 1993.

The Court’s approach to applications for costs

[9]      Rule 14.1 gives the Court a discretion to order costs in relation to a step taken in a proceeding.  That discretion is generally to be exercised in accordance with the specific Rules contained in rr 14.2-14.10.5   In Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd it was said of the costs regime contained in what is now rr 14.2-14.10 that:6

there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary[.]

The test to be applied is entirely an objective and not a subjective one.   The only reference which  it is necessary to make towards actual costs is to be found in r 14.2(f), namely that an award of costs should not exceed the costs incurred by the

party claiming the costs.7

4 [2013] NZHC 2384.

5      Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [19].

6      Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd

(2002) 16 PRNZ 662 (CA) at 668.

7      Glaister v Amalgamated Dairies Ltd, above n 5, at [14].

[10]     It is unnecessary that I review the matters that are set out in r 14.2 in light of the positions adopted by the parties.  This is a Category 2 case and, to the extent that it is appropriate to deal with each step that was taken, Band B is the appropriate band.

[11]     Rule 14.6 sets out the circumstances where increased or indemnity costs can be awarded.

[12]     Rule 14.6 in relation to indemnity costs provides:

14.6     Increased costs and indemnity costs

(1)      Despite rules 14.2 to 14.5, the court may make an order—

(a)      increasing   costs   otherwise   payable   under   those   rules

(increased costs); or

(b)       that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

….

(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

(b)       the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

(c)       costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d)       the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or

(e)       the party claiming costs is entitled to indemnity costs under a contract or deed; or

(f)       some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination  of  costs  should  be  predictable  and expeditious: rr 14.2-14.10.

[13]     In  Paper Reclaim Ltd  v Aotearoa International Ltd the Court of Appeal considered an application for indemnity costs pursuant to the now r 14.6(4)(a).8   The Court emphasised the need to examine the specific grounds set out in the Rule for ordering indemnity costs.

[14]     In Hedley & Ors v Kiwi Co-operative Dairies Ltd it was said:9

[8]       Such  authorities  as  there  are  indicate  that  indemnity  costs  are awarded where truly exceptional circumstances exist.

The court’s approach was approved in Bradbury v Westpac Banking Corporation.10

[15]     The Court of Appeal said:11

While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:

(a)       the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)       particular misconduct that causes loss of time to the court and to other parties;

(c)       commencing or continuing proceedings for some ulterior motive;

(d)       doing so in wilful disregard of known facts or clearly established law;

(e)       making allegations which ought never to have been made or unduly prolonging   a   case   by   groundless   contentions,   summarised   in French J’s “hopeless case” test.

Each of these concerns conduct which would fall within r 14.6(4).

[16]     Ms Roff submitted that the following matters justified an award of indemnity costs for the steps taken after 12 September 2013, namely:

(a)       It was inevitable that the plaintiff’s application would be dismissed having regard to the judgment which I delivered in Bristol Forestry

8      Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA).

9      Hedley & Ors v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [8].

10     Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA).

11     At [29]–[30].

Venture Ltd v Commissioner of Inland Revenue Department;12

(b)      The application, in the final analysis, required a successful recall of part of the reasons given by the Supreme Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue.13    It was a matter discussed at the hearing and the application was only made as a result of that discussion.   It led to further submissions and a delay in the conclusion of the hearing;

(c)      The application was hopeless from the outset.  It was not supported by factual evidence or legal authority;

(d)      Submissions were made as to the plaintiff’s solvency without there being proper evidential support for them;

(e)      There  was  an  allegation  of  improper  motive  for  the  issue  of  the statutory demand.   That allegation was really baseless because it ignored the fact that the Commissioner had not been paid for a debt which had been established;

(f)      The application was part of an overall strategy which is designed to delay and frustrate the Commissioner’s attempts to collect tax that was owing in respect of the 1998 tax year.  That strategy had in fact been referred to in previous judgments of the court.14

[17]     There can be no doubt that there has been a history of court application and challenge to the founding judgments, which I need not review because they are referred in my substantive judgment.  Every case, with the exception of one, seems to have been taken on appeal.   The plaintiff has been unsuccessful in all those attempts.    I  accept  Ms Roff’s  submission  that  the  arguments  advanced  on  the

plaintiff’s behalf are groundless and are unsupported.  The background evidence of

12     Bristol Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 2819.

13     Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 3.

14     Accent  Management  Ltd  v  Commissioner  of  Inland  Revenue  [2012]  NZHC  1430;  Accent

Management Ltd v Commissioner of Inland Revenue [2012] NZHC 2389.

challenge after challenge that occurs with this Trinity litigation has been the subject of numerous judicial comment.   I do not overlook the submission made that there may  well  have  been  little  alternative  to  the  plaintiff  continuing  after  my  first judgment if the plaintiff wished to keep alive its rights to challenge the statutory demand.  The point is, however, that if I am proved to be wrong, then that can be corrected at the appellate review of this case.   If I am proved to be correct, the history of this case simply establishes that a justification for indemnity costs in terms of r 14.6(4) exists.   Any one of the matters referred to in the Court of Appeal in Bradbury v Westpac Banking Corporation can apply here.

[18]     Accordingly, I conclude that this is a proper case for indemnity costs.  The calculation as such has not been questioned by the plaintiff. Accordingly, I order that the plaintiff pay the defendant’s costs in relation to this application in the sum of

$16,269 plus disbursements of $1,916.83.

JA Faire

Associate Judge