Sisson v Commissioner of Inland Revenue
[2017] NZCA 417
•19 September 2017 at 12.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA633/2015 [2017] NZCA 417 |
| BETWEEN | THERESE ANNE SISSON |
| AND | THE COMMISSIONER OF INLAND REVENUE CHESTERFIELDS PRESCHOOLS LIMITED (IN LIQ) |
| Hearing: | 15 September 2017 (by telephone) |
Counsel: | Appellant in person |
Judgment: | 19 September 2017 at 12.00 pm |
JUDGMENT OF BROWN J
AThe application for an order staying the liquidation proceedings in Commissioner of Inland Revenue v Chesterfields Preschools Ltd (CIV‑2015‑409‑43) is granted pending any further order of the Supreme Court.
BThe liquidators are directed not to sell the property at 854 Colombo Street, Christchurch, until further order of the Supreme Court.
____________________________________________________________________
REASONS
Introduction
On 25 August 2017 the appellant, Ms Sisson, filed in the Supreme Court an application for leave to appeal from a judgment of this Court delivered on 28 July 2017.[1] She then made an application to this Court pursuant to r 30(2) of the Supreme Court Rules 2004 for a stay of the liquidation proceedings in respect of Chesterfields Preschools Limited (CPL) for a period of 90 working days. The application is opposed by both the first and second respondents (the Commissioner of Inland Revenue (the Commissioner) and the liquidators of CPL respectively).
[1]Sisson v The Commissioner of Inland Revenue [2017] NZCA 326.
The application may be determined by a Judge of this Court pursuant to r 7(1)(b) of the Court of Appeal (Civil) Rules 2005. Both the respondents indicated that they were unwilling for the matter to be determined on the papers. Consequently, because of the urgency of the matter referred to further below, I conducted the hearing by telephone.
On 18 September 2017 I released a results judgment granting the application for a stay of proceedings with reasons to follow.[2] These are my reasons.
Background
[2]Sisson v The Commissioner of Inland Revenue [2017] NZCA 416.
CPL was put into liquidation by the order of the High Court in Commissioner of Inland Revenue v Chesterfields Preschools Limited,[3] it having failed to comply with a statutory demand for $1,231,940.11 served by the Commissioner. That demand was for an amount of outstanding tax said to be owed by CPL.
[3]Commissioner of Inland Revenue v Chesterfields Preschools Limited [2015] NZHC 2440, (2015) 27 NZTC 22-029.
On 29 October 2015 Associate Judge Osborne recalled the liquidation judgment for the purposes of joining the appellant to the proceeding so as to enable her to appeal the liquidation judgment.
The appeal against the liquidation order was heard by this Court on 27 June 2017. The appellant sought to challenge certain conclusions of this Court made in a decision released in 2010 on an appeal from a judicial review of the Commissioner’s decisions concerning CPL’s tax indebtedness (the 2010 decision).[4] In upholding the Commissioner’s res judicata contention, we concluded that the 2010 decision was a final decision on the appropriate level of reduction of penalties upon unpaid tax for which CPL was liable and that the issues ultimately resolved in the 2010 decision may not be revisited again.[5]
[4]Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500.
[5]Sisson v The Commissioner of Inland Revenue, above n 1, at [102]–[103].
However we considered that there had not been any actual determination by the High Court or any other Court as to the precise amount of reduction and the consequent level of CPL’s indebtedness.[6] With reference to the High Court conclusion on CPL’s solvency we concluded:
[86] However, even if the Commissioner’s calculations remained unchallenged either as to methodology or accuracy (a matter to which we refer at [104] below), the fact of the matter is that the difference between the revised debt claim and CPL’s asset position appears to be comparatively narrow. The variability in the figures relied on by the Commissioner and the unchallenged value of CPL’s assets meant that it was at least open to doubt that the Court could properly make a liquidation order by adopting the approach recorded at [66] of Associate Judge Osborne’s judgment.
[6]At [104].
Consequently we allowed the appeal, set aside the liquidation order and remitted the matter back for rehearing in the High Court where greater scrutiny could be given to the figures. This was subject to the following:
[88] That order is conditional on Ms Sisson, on behalf of CPL, paying into the High Court at Christchurch within 15 working days of this judgment the amount of $109,675.22. Had CPL successfully applied to set aside the statutory demand we consider that a condition to that effect would have been imposed. Given our view at [78] above, it is proper that that amount should be paid without further delay.
(Footnotes omitted.)
At [78] of our judgment we had concluded that $109,675.22 was the amount of core tax which had been accepted as not in dispute during the course of the hearing of the appeal the subject of the 2010 decision.
The state of the evidence before us indicated CPL had funds available to enable that sum to be paid into Court, namely term deposits at the ANZ Bank held in trust by the appellant on behalf of CPL in the amounts of $148,875.54 and $24,154.38.[7] The evidence suggested that the assets of CPL, which included a property at 854 Colombo Street, Christchurch, had a value of approximately $1,017,094.60.[8]
[7]At [80].
[8]At [83].
Unbeknown to the Court, at the date of delivery of judgment the bank deposits were no longer available. As the Commissioner’s notice of opposition of 5 September 2017 to the present application stated:
This Court delivered its judgment, including the condition, on the basis of evidence from Mr Hampton and Ms Sisson to the effect that the company had cash resources available and therefore the ability to pay the $109,675.22. While that may have been the position in early April 2017, following what in the Commissioner’s view was unnecessary litigation (generated by Ms Sisson), nearly all of that funding was consumed by legal fees and the liquidator’s costs in managing that litigation.
The significance of the reference to early 2017 was that the liquidators’ six monthly report of 24 April 2017 recorded cash at bank of $121,001 as at 6 April 2017. It appears that between that date and the date of the hearing in this Court the bulk of those funds were taken by the liquidators for their fees.
In the event, despite the best efforts of the appellant (noted further below at [41]) the condition was not fulfilled by 18 August 2017, judgment was sealed on that day by the Commissioner, and the liquidators took the position that, the order having been sealed, this Court was functus officio and the judgment could not be recalled.
In the application for leave to appeal to the Supreme Court the appellant seeks to challenge both this Court’s finding of res judicata and the imposition of the condition requiring a payment into Court of $109,675.22.
Principles applicable to a stay application
With one qualification, the principles applicable to a stay application under r 30 of the Supreme Court Rules are the same as the well-established principles applying when a stay is sought under r 12 of the Court of Appeal (Civil) Rules 2005.[9] In determining whether or not to grant a stay the Court must weigh the factors in the balance between the successful litigant’s rights to the fruits of a judgment and the need to preserve the parties’ original positions in case the subsequent appeal is successful.[10]
[9]GFM v JAM[Stay of execution] [2014] NZCA 43, (2014) 29 FRNZ 535 at [9]‑[10].
[10]Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.
Factors to be taken into account in that balancing exercise include:[11]
(a)whether the appeal may be rendered nugatory by the lack of a stay;
(b)the bona fides of the applicant as to the prosecution of the appeal;
(c)whether the successful party will be injuriously affected by the stay;
(d)the effect on third parties;
(e)the novelty and importance of the questions involved;
(f)the public interest in the proceeding; and
(g)the overall balance of convenience.
[11]Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
Where the Supreme Court has not granted leave to appeal, an additional consideration is the likelihood of the applicant being able to satisfy the criteria for leave set out in s 13 of the Supreme Courts Act 2003.[12]
Analysis
Whether appeal may be rendered nugatory
[12]GFM v JAM [Stay of execution], above n 9, at [10]. Section 13 of the Supreme Courts Act 2003 has now been replaced by s 74 of the Senior Courts Act 2016; nothing turns on this change as the wording of both is identical.
The event which triggered the appellant’s stay application was the action of the liquidators of CPL in listing for sale the property at 854 Colombo Street. Annexed to Ms Sisson’s affidavit of 31 August 2017 in support of the stay application was a copy of the Bayleys’ listing on realestate.co.nz recording that on 29 August 2017 the property had been listed for sale by auction on 22 September 2017 unless sold prior. The listing states that the liquidators’ “instructions are clear … Sell on or before auction day!”
For the Commissioner, Mr Kinsler responsibly accepted that it was at least arguable that any appeal to the Supreme Court would be rendered nugatory if no stay was imposed and the property was sold.
The liquidators on the other hand maintained that the appeal would not be rendered nugatory by the lack of the stay. In Mr Russell’s submission on behalf of the liquidators, the contrary contention ignored the reality that a substantial debt was owed to the Commissioner and consequently the property would need to be sold at some point in any event. In support of that contention, and taking issue with the figures referred to by Ms Sisson, he advanced a lengthy analysis of the amount which was likely to be received under the IAG insurance policy.
The liquidators’ submission appears to overlook the fact that the analysis of CPL’s assets in our judgment identified the IAG pay-out (yet to be disbursed) as the figure of $138,064.77, the same figure as that referred to in the NZI letter of 16 March 2016[13] and the same figure as that noted in the affidavit of Mr Hollis, one of CPL’s liquidators, in opposition dated 5 September 2017.
[13]Sisson v The Commissioner of Inland Revenue, above n 1, at [82].
On the question of CPL’s liabilities Mr Hollis’s affidavit stated:
After payment of the liquidator’s costs and expenses including legal fees, and agent’s fees, taking into account the value of the property at 854 Colombo Street, estimated to be approximately $1m but subject to the outcome of a liquidator’s sale, it is most unlikely that there will be any residue after payment of preferential creditors. As matters currently stand the IRD’s debt owed by CPL exceeds $1m, so on that basis there is most likely to be a shortfall to creditors.
In fact the amount owed to the Inland Revenue Department is yet to be finally determined by a Court. Moreover the analysis in our judgment suggested that the total assets of CPL appeared to be only slightly shy of the revised figure of $1,088,461.15.[14] I also note in passing that Mr Hollis’s reference to multiple creditors is not accurate. Mr Russell acknowledged in the course of submissions that the Commissioner is the only creditor.
[14]At [83].
I recognise the practical reality that in order to discharge the taxation debt owed to the Commissioner recourse will need to be had to the equity in the now unencumbered property at Colombo Street. However, if it were to be held at a subsequent hearing in the High Court that CPL was not insolvent, then it would be open to CPL to investigate options to maximise the return on the property, possibly by way of a joint venture development. That opportunity would be lost if the liquidators were to proceed with the deadline sale on 22 September 2017.
Once sold, then the die is cast for the future of the property. I am unable to accept the liquidators’ proposition that, if leave to appeal is granted by the Supreme Court but no stay is in place, the appeal would not be rendered nugatory by the sale of the property by auction on 22 September 2017.
Bona fides of the applicant
Although the appellant’s bona fides was not expressly challenged, the liquidators launched a spirited attack on her standing to bring the application. Their notice of opposition contended:
(a)the appellant was joined to the liquidation personally as a director in order to pursue an appeal of the liquidation judgment;
(b)the appeal has been pursued in this Court so the purpose of joinder is spent;
(c)the appellant is bankrupt following the application of the liquidators and has no standing as a director to carry on proceedings because s 436 of the Insolvency Act 2006 provides that it is an offence for a bankrupt to be a director;
(d)any right that the appellant had in her capacity as a director to bring claims is a property right which vests in the Official Assignee pursuant to s 101 of the Insolvency Act; and
(e)the appellant had attempted to avoid the issue of standing created by her bankruptcy by making the stay application in a new capacity as a “trustee shareholder” of CPL.
I tested the liquidators’ proposition by asking Mr Russell whether, if the payment into Court had been made and the condition fulfilled, the liquidators would still challenge the appellant’s standing to resist the making of a liquidator order. His response was that the appellant’s status appeared to have been “overlooked” and that, while the liquidators were “stuck with the fact” that the appellant secured standing to bring the appeal in this Court, in fact she should not be able to continue with the matter.
The appellant had previously anticipated such a challenge. In his judgment of 23 June 2017 adjudicating the appellant bankrupt, Associate Judge Osborne said:[15]
[30] While Ms Sisson is clearly concerned that, in the event of her intervening bankruptcy, the Commissioner may attempt to impede the hearing of the appeal, the matters she raises do not of themselves prevent her being heard on the appeal. She (by reason of her joinder) is a party in the appeal proceeding. She was joined in her capacity as someone able to present argument on behalf of Chesterfields. She was not joined in relation to her personal interest. Her bankruptcy would not operate to cut across her joinder. The appeal proceeding is not affected by the statutory halt provision under s 76 of the Act. Proceedings which are by that provision automatically halted on adjudication are those to recover any debt provable in the bankruptcy.
[15]Chesterfields Preschool Ltd (in liq) v Sisson [2017] NZHC 1410 (footnote omitted).
At the commencement of the hearing on 27 June 2017 we addressed this issue with counsel for the Commissioner and determined to proceed on the same footing as stated by the Associate Judge.
Nothing has occurred since to cause me to reach a different view. The appellant’s bankruptcy does not preclude her seeking leave to appeal to the Supreme Court in this matter or seeking a stay of proceedings in the interim. I reject the liquidators’ standing objection founded on the appellant’s bankruptcy.
Abuse of process objection
A further preliminary objection taken by the liquidators (but not by the Commissioner) was that a stay of execution application in the High Court had been dismissed six months previously and not appealed. Hence it was said to be an abuse of the Court of Appeal’s process to seek to recommence essentially the same application for a stay.
That submission fails to recognise subsequent events, in particular the fact that this Court concluded that the appeal should be allowed and the liquidation order set aside. The matter has not proceeded in the High Court because the condition for the payment into the High Court was not satisfied. The reasons for that are discussed below.[16]
[16]See [38]‑[44].
Further, the fact that the appeal was allowed and, but for failure of compliance with the condition, the matter would have been addressed afresh in the High Court provides a sufficient justification for an application to stay the liquidation proceedings pending the application for leave being heard by the Supreme Court.
The merits of the appeal
The Commissioner contended that the merits of the proposed appeal are very weak and that there was no issue of public importance or commercial significance identified in the proposed appeal or the application for leave.[17] Rather it was said that the appellant was seeking to continue to re-litigate matters which are either live in parallel litigation between the parties or which have been concretely determined in other proceedings and which in any event can have no proper bearing on CPL’s insolvency.
[17]Supreme Court Act, s 13(2)(a) and (c).
The Commissioner supported this Court’s conclusions at [99] and [107], drew attention to r 5.61(1) of the High Court Rules[18] and submitted that the prospects of leave being granted were remote, such that no stay should be granted.
[18]Which provides that, in a proceeding by the Crown for the recovery of taxes, duties, or penalties, a defendant is not entitled to advance any set-off or counterclaim.
The Commissioner’s contention has force so far as it goes. However it does not address the ground in s 13(2)(b) of the Supreme Court Act, which provides that it is necessary in the interests of justice for the Supreme Court to hear and determine a proposed appeal if a substantial miscarriage of justice may have occurred or may occur unless the appeal is heard.
In my view there is room to conclude that a substantial miscarriage of justice occurred in the context of the particular circumstances whereby, despite the appeal being allowed, the payment-in condition was unable to be fulfilled contrary to the expectations of this Court at the time of imposing the condition and where it is said that this Court is unable to recall and vary its judgment.
The starting point is that the appellant was joined as a party to the appeal in the absence of any person prepared to assume that task. It was not her personal tax liability which was at stake. The tax which was payable to the Commissioner was CPL’s tax, not the appellant’s.
Reflecting that fact, this Court recited its understanding from the evidence before it of CPL’s cash situation and it made an order that Ms Sisson “on behalf of CPL” was to make a payment-in of the amount of CPL’s core tax which was not disputed at the 2010 appeal. We noted that had CPL successfully applied to set aside the statutory demand, a condition to that effect would have been imposed, namely a payment-in by CPL.[19]
[19]Sisson v The Commissioner of Inland Revenue, above n 1, at [88].
As the Commissioner’s notice of opposition reflected, and Mr Kinsler in oral submissions confirmed, the Commissioner understood the Court’s ruling as one directing that payment be made from CPL’s funds. However the liquidators did not share that view.
In an email of 1 August 2017, Mr Hollis wrote:
The condition first requires Therese Sisson to make the payment, presumably from funds outside of CPL. The condition is not imposed upon CPL nor me as liquidator.
In any event, CPL currently holds funds of $15,095.01. There are also unpaid liquidators’ legal expenses in excess of this amount, which are a first priority claim in the liquidation. A modest GST refund due shortly will result in a cash position of approximately $400 after payment of legal fees. In short there are no funds available to meet your request even if there was an obligation on CPL to comply with it, which we do not accept.
Given that the appellant was already bankrupt, on the liquidators’ own application, I consider that the liquidators’ interpretation was disingenuous.
Confronted with this stance, the appellant then endeavoured to borrow the necessary funds from a third party but the intended lender required that security be provided over the Colombo Street property. The liquidators refused to agree to this course. Indeed they obtained an ex parte freezing order over the assets of CPL. Those are the circumstances in which there was a failure to satisfy the condition requiring that funds be paid into Court on behalf of CPL.
I recognise that the freezing order was obtained in substantial part in response to the appellant’s misguided attempt to herself purport to sell the Colombo Street property. However the terms of the order sought did not make any provision which would have facilitated the use of CPL’s assets as even security for obtaining finance from a third party to enable the payment-in condition to be fulfilled. In that respect it cemented the stance which the liquidators took in the email of 1 August 2017.
The judgment of this Court was promptly sealed on 18 August 2017. In response to the appellant’s request for an extension of time the liquidators filed a memorandum stating that, the orders having been sealed, judgment could not be recalled and there was no ability for the appellant to ask this Court to change its decision.
This Court’s expectation that CPL’s acknowledged core tax should be paid into Court from funds of CPL, which the Court understood were available and able to be deployed for that purpose by Ms Sisson in a trustee capacity, has been defeated. In those circumstances I consider that there are at least reasonable grounds for a conclusion that a substantial miscarriage may have occurred because, the condition imposed by this Court not having been fulfilled, the rehearing of the application to place CPL into liquidation will not proceed. Hence I do not accept the Commissioner’s submission that a criterion in s 13(2) may not be established.
Other factors
The liquidators submitted that there is a public interest in liquidators retaining their powers in full until a liquidation order is set aside. In particular it was contended that it is unreasonable for liquidators to be required to cease acting but still be required to expend time, and consequently money, in liquidation-related proceedings initiated by the appellant.
However, when a concern is identified as to the appropriateness of a liquidation order and an order is made setting it aside, albeit subject to a condition, in my view the public interest is best reflected in the spirit of the Court’s order being observed. That has not happened in this case.
The direction that there be a payment into Court was made in the interests of the sole creditor, the Commissioner. Her position is protected by the ex parte freezing order obtained on 15 August 2017. As there are no other creditors, the implications for third parties is not a relevant factor in this case.
Conclusion
Weighing the several factors considered above, I conclude that the balance of convenience clearly favours the grant of a stay of the liquidation proceedings pending further consideration of this matter by the Supreme Court. The property at 854 Colombo Street should not be sold in the interim.
Result
I make the following orders:
(a)The application for an order staying the liquidation proceedings in Commissioner of Inland Revenue v Chesterfields Preschools Ltd (CIV-2015-409-43) is granted pending any further order of the Supreme Court.
(b)The liquidators are directed not to sell the property at 854 Colombo Street, Christchurch, until further order of the Supreme Court.
As the appellant is self-represented, there is no order as to costs.
Solicitors:
Crown Law Office, Wellington for First Respondent
Lane Neave, Christchurch for Second Respondent
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