Singh v Commissioner of Inland Revenue HC Auckland B1429-Im01

[2002] NZHC 293

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY B1429-IM01

IN THE MATTER of the Insolvency Act 1967

AND IN THE MATTER of the Bankruptcy of MOTI SINGH of 76A Panorama Road, Mt Wellington, Lawyer
Debtor

AND THE COMMISSIONER OF INLAND REVENUE at Wellington
Creditor

Hearing: 25 March 2002

Counsel: M Singh in Person
RJ Willox for creditor

Judgment: 5 April 2002

JUDGMENT OF MASTER GENDALL

Solicitors: M Singh, 76A Panorama Road, Mt Wellington, Auckland
Crown Solicitor, PO Box 2213, Auckland

[1] The debtor applies pursuant to r 41 of the Insolvency Rules 1970 to set aside a bankruptcy notice which was issued on 16 November 2001.

[2] The bankruptcy notice was issued following the entry of a final judgment against the debtor in the District Court on 6 August 2001. Final judgment was entered for $84,473.94. The bankruptcy notice claimed $10,102.08 under an order as to costs made on 10 September 2001, subsequent costs totalling $145 making a total of $94,721.02.

[3] The debtor filed this application on 21 December 2001.

[4] The combined effect of s 19(1)(d) and s 20 of the Insolvency Act 1967 and r 41 of the Insolvency Rules 1970 is that a debtor must satisfy the Court either -

[a] That the amount of the judgment debt has been paid; or

[b] That the debtor has a counterclaim, set-off or cross-demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid and which he could not set up in the action in which the judgment was obtained.

[5] The grounds advanced by the debtor to set aside the bankruptcy notice as outlined in his application are -

[a] That he has a counterclaim, set-off or cross-demand against the creditor that equals or exceeds the amount claimed in respect of the judgment together with costs which the debtor could not set up in the action in which the judgment was obtained.

[b] The creditor has seized about $87,000 from the debtor’s bank accounts dating back to November 1992 on the pretext that the debtor owed some $129,000 in outstanding income tax and various penalties.

[c] The debtor has persistently disputed the alleged tax liability and had requested the matter be determined by the Taxation Review Authority which the creditor has been delaying.

[d] The creditor has in the past undertaken not to bankrupt the debtor until the debtor’s taxation appeal is determined by the Taxation Review Authority.

[e] The judgment upon which the creditor’s claim is based is defective and the debtor will be seeking judicial review of this judgment.

[f] Unless the debtor’s tax liability is finalised conclusively he is in no position to satisfy the judgment debt.

[g] The creditor’s conduct in seeking the bankruptcy notice is an abuse of the process of the Court and the creditor is motivated by vindictiveness and vendetta.

[6] The creditor opposes this application to set aside the bankruptcy notice and puts forward the following grounds for doing so -

[a] The debtor has a contingent excess tax credit from the creditor for a sum of approximately $41,091.74 which does not equal or exceed the amount claimed by the creditor.

[b] The debtor has refused to grant the Commissioner a right of set-off of the excess tax credits accruing against the judgment debt.

[c] The debtor has no right to set-off a claim to an excess tax credit against the creditor’s judgment for stolen moneys.

[d] There is no extant appeal against the judgment debt.

[e] There is no abuse of process vendetta and/or victimisation of the debtor.

[7] I make it plain at the outset that I must deal with this application under s 19(1)(d) and s 20 of the Insolvency Act 1967 and r 41 of the Insolvency Rules 1970 as outlined above.

[8] I cannot deal with this matter as if it were a petition for adjudication pursuant to s 26 of the Insolvency Act 1967 at this time. Indeed all relevant evidence relating to the petition for adjudication is not before me. It is clearly premature to express any view on what that outcome might be.

[9] I shall now deal with each ground of the debtor’s application to set aside the bankruptcy notice outlined in para [5] above.

The debtor has a counterclaim, set-off or cross demand against the creditor that equals or exceeds the amount claimed in respect of the judgment together with costs which the debtor could not set up in the action in which the judgment was obtained.

[10] From the original amount claimed under the bankruptcy notice, being $94,721.02 the debtor has been given a credit of $34,119.03 which leaves a sum of $60,601.99 outstanding. Even if the further contingent tax credit in contemplation were to be granted to the debtor, there would still be a substantial amount outstanding under the bankruptcy notice.

[11] The debtor has not appealed the decision of Judge Hole dated 8 August 2001, the judgment upon which the creditor relies in this matter.

[12] The debtor claims that he will seek a judicial review of this decision of Judge Hole but there is nothing before the Court at this point to indicate that any such action will proceed.

[13] A decision of Judge Barber in the Taxation Review Authority was made on 17 January 2002 in connection with a separate tax matter put forward by the debtor. This decision was unfavourable to the debtor and there has been no appeal against this decision.

[14] I am not satisfied that the debtor has set up any matters which he could not have set up in the proceedings which resulted in the 6 August 2001 judgment the subject of the bankruptcy notice or similarly in any counterclaim, set-off or cross demand proceedings.

[15] In addition, Mr Willox on behalf of the creditor contends that r 146(2) High Court Rules prevents the debtor raising set-off or counterclaim in this matter.

[16] Rule 146(2) states -

“In any proceeding of any other nature by the Crown, no defendant shall be entitled to avail himself of any set-off or counterclaim arising out of a right or claim to payment in respect of any taxes, duties or penalties.”

[17] The words in r 146(2) “in any proceeding of any other nature by the Crown” are defined to mean any proceeding by the Crown other than for the recovery of taxes, duties, or penalties. Here, the final judgment upon which the bankruptcy notice is founded represented at least in part stolen refund tax cheques misappropriated by the debtor. Being stolen moneys, Mr Willox for the creditor contends that they are not “recovery of taxes, duties, or penalties” and r 146(2) applies.

[18] Given my finding in para [14] above I do not need to definitively determine this question. I do, however, express the preliminary view at this point that I believe there is merit in Mr Willox’s argument.

[19] My conclusion is clear, therefore, that the debtor has been unable to satisfy the Court that he has a counterclaim, set-off or cross demand in terms of s 19(1)(d) which would justify the setting aside of this bankruptcy notice.

[20] I now turn to the second ground advanced by the debtor.

The creditor has seized about $87,000 from the debtor’s bank accounts dating back to November 1992 on the pretext that the debtor owed some $129,000 in outstanding income tax and various penalties

[21] This of itself is not a ground for setting aside the bankruptcy notice. Before me the parties acknowledge that moneys were seized and that a proper set-off was made by the creditor to reach a final outstanding amount under the bankruptcy notice of $60,601.99. There is no substance in this ground for setting aside the bankruptcy notice.

The debtor has persistently disputed the alleged tax liability and had requested the matter be determined by the Taxation Review Authority which the creditor has been delaying

[22] This is the third ground advanced by the debtor. As indicated in paras [11] and [13] above, the debtor’s taxation position has been conclusively determined on all the available material put forward by the debtor over quite a lengthy period. These decisions were unfavourable to the debtor and he has been unable to place before the Court in these proceedings any other material to support this ground to justify setting aside the bankruptcy notice.

The creditor has in the past undertaken not to bankrupt the debtor until the debtor’s taxation appeal is determined by the Taxation Review Authority

[23] In this respect Mr Singh refers to an affidavit sworn by an officer of the Inland Revenue Department dated 27 February 2001. In an interlocutory hearing before the District Court where the Commissioner’s officer states -

“The Commissioner would be prepared to entertain a stay of any bankruptcy action against Mr Singh pending his TRA appeal.”

[24] It is clear that this statement pre-dates the entry of final judgment against the debtor in the District Court on 6 August 2001. In addition, Mr Willox for the creditor claims that the Commissioner has maintained the spirit of that indication by postponing a request to issue the bankruptcy notice until after the Taxation Review Authority case was heard which occurred on 12 and 14 September 2001.

[25] There has been no stay of execution of this final judgment obtained by the creditor and the debtor has not been able to put before the Court any cogent evidence to support his allegations with regard to this point.

The judgment upon which the creditor’s claim is based is defective and the debtor will be seeking judicial review of this judgment

[26] As indicated in para [12] above the debtor has been unable to satisfy the Court that he will be seeking judicial review of the judgment and that he has any real prospects of success were he to do so. The debtor did not appeal the decision of Judge Hole and under these circumstances I must agree with the contention put forward by Mr Willox for the creditor that it is unlikely that any High Court would exercise a discretion to entertain any review here in circumstances where the applicant has not exhausted his appeal rights. In addition the debtor was unable to show that he had filed any application for judicial review at this point.

Unless the debtor’s tax liability is finalised conclusively he is in no position to satisfy the judgment debt

[27] I have already dealt with this ground in preceding paragraphs. Suffice to say that the debtor has been unable to satisfy the Court of either of the matters set out in para 4 of this judgment which are required before a bankruptcy notice may be set aside.

The creditor’s conduct in seeking the bankruptcy notice is an abuse of the process of the Court and the creditor is motivated by vindictiveness and vendetta

[28] Mr Willox in his submissions for the creditor indicated that similar claims have been raised by the debtor in other proceedings, evidence was heard, the claims were finally determined and were unsuccessful. He refers to Singh v CIR (2000) 19 NZPC 15838 at p 15845.

[29] I am not satisfied that the debtor has put before the Court any significant matters of substance to justify his allegation that there has been any abuse of the process of the Court and/or that the creditor was motivated in this matter by vindictiveness and vendetta. The debt which is the subject of the bankruptcy notice relates principally to moneys which were misappropriated by the debtor some years ago and I can see no evidence here of any abuse of process from a legal point of view. I reject the debtor’s contention under this ground.

Bill of Rights and Human Rights arguments

[30] Although arguments under the Bill of Rights Act and the International Covenant on Civil and Political Rights were not raised in the debtor’s application to set aside the bankruptcy notice, the debtor chose to make submissions with regard to these matters at the hearing and I now deal with them.

[31] As to the Bill of Rights Act argument, s 9 of the Bill of Rights Act states -

“Everyone has the right not to be subjected to torture or to cruel, degrading, or disproportionately severe treatment or punishment.”

[32] The debtor contends that in its overwhelming desire to bankrupt the debtor, the creditor has violated s 9. Nothing has been placed before the Court by the debtor to substantiate this novel argument and I can see no substance in it here.

[33] As to the human rights argument, this follows a similar vein. Article 7 of the International Covenant on Civil and Political Rights provides -

“No-one shall be subjected to cruel, inhuman and degrading treatment.”

[34] The debtor states that he has a pending complaint against the New Zealand Government to the United Nations Human Rights Committee regarding the propriety of the convictions upon which the creditor’s claim is founded. I question the relevance of this argument to this matter. In any event, again, the debtor has put nothing before the Court to substantiate this argument and I reject it.

[35] This deals with each of the grounds put forward by the debtor supporting this application. In considering these grounds I have effectively dealt with the bulk of the grounds put forward by Mr Willox for the creditor in opposition to this application. For the sake of completeness, however, there is one further matter raised by Mr Willox at the hearing, which I now dispose of. This relates to the issue concerning futility of bankrupting the debtor.

[36] Mr Willox dealt with this matter in his submissions as the debtor had alluded in his affidavit of 30 January 2002 at para 33 to the futility of he being bankrupted given his state of affairs.

[37] In doing so, Mr Willox referred me to In Re Murphy ex parte Trotter, Quirke & Lewis 14/2.91, High Court Palmerston North, B.1 18/90 (unreported) in which Heron J contrasted the Court’s role under s 19 Insolvency Act 1967 with its role under s 26, when he said he did not consider he had any residual discretion in considering an application to set aside a bankruptcy notice at the s 19 stage. I respectfully agree.

[38] Any argument by the debtor that it would be futile to bankrupt him is a matter which will fall for consideration if and when the Court is asked to exercise its discretion in the event of a bankruptcy petition being presented - s 26 Insolvency Act 1967. See Sharma v ANZ Banking Group (New Zealand) Ltd (CA) (1992) 6 PRNZ 386 at 391.

Conclusion

[39] The debtor has failed to satisfy the requirements in s 19(1)(d) Insolvency Act 1967 and I conclude, therefore, that there is no basis for setting aside the bankruptcy notice.

[40] I therefore dismiss the application.

[41] The creditor is entitled to costs which I fix at Category 2 Band B together with disbursements as fixed by the Registrar.