Stone Development Holding Limited v Commissioner of Inland Revenue HC Auckland CIV 2006-404-6541

[2007] NZHC 1647

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2006-404-6541

IN THE MATTER OF     an application under s 290 Companies Act

1993 to set aside a statutory demand

BETWEEN  STONE DEVELOPMENT HOLDING LIMITED

Plaintiff

ANDCOMMISSIONER OF INLAND REVENUE

Defendant

Hearing:         21 February 2007

Appearances: N S Tabb for Applicant

N Malarao for Respondent

Judgment:      21 February 2007 at 4.00 pm

ORAL COSTS JUDGMENT OF ASSOCIATE JUDGE H SARGISSON

Solicitors:

Yu Lawyers, PO Box 96135, Balmoral, Auckland

Meredith Connell, PO Box 2213, Auckland

STONE DEVELOPMENT HOLDING LIMITED V COMMISSIONER OF INLAND REVENUE HC AK CIV

2006-404-6541  21 February 2007

[1]      The applicant’s application to set aside the Commissioner’s statutory demand was set down for a defended hearing today.

[2]      On  14  December  2006,  Judge  Doogue  made  directions  requiring  the applicant to file any affidavits in reply by 16 January 2007.

[3]      The applicant has not filed any evidence in reply and yesterday counsel for both parties filed a joint memorandum advising that the applicant would withdraw its application.

[4]      By consent I make an order that the application is withdrawn by leave.

[5]      I also make an order on an unopposed basis under s 291(1)(a) of the Act, that the applicant is to pay the debt set out in the statutory demand on or before 14

March 2007 and that in default, the respondent may make an application to the Court to put the applicant into liquidation.  The order is made on an unopposed basis (not by consent as indicated in the joint memorandum).  Ms Tabb advises that the memorandum misstates the extent of her instructions.   However she indicates that she has no reasonable basis for opposing the order.

[6]      There is an outstanding issue about costs.  The respondent seeks an order for costs on a 2B basis together with disbursements as fixed by the Registrar.   The respondent relies on r 476C which states:

Unless the defendant otherwise agrees or the Court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[7]      The  applicant  opposes  an  order  for  costs.    In  the  alternative,  Ms  Tabb submitted any order should be limited to costs on a 1A basis.

[8]      As noted in McGechan on Procedure at HR 476C.01 one of the principles the

Court tends to follow when asked to depart from the presumption in r 476C is

whether the plaintiff acted reasonably in commencing the proceeding and, similarly, the defendant in defending it.

[9]      I am satisfied on the evidence that the respondent acted reasonably both in issuing its statutory demand and in defending the applicant’s application.

[10]     There is no dispute that the applicant owes the Commissioner a significant sum of money.  The amount of the demand is approximately $440,000.00 and has been outstanding for some time.   The applicant says that it drew to the Commissioner’s attention that it was holding $730,000.00 in trust as a sum to meet a potential claim by another party, and that if the moneys were not required to meet the claim, there would be moneys available to pay the Commissioner.   The applicant contends that the Commissioner should not have issued the demand in these circumstances.

[11]     The applicant also relies on this position, together with the fact that it has no other  creditors,  in  support  of  its  assertion  that  the  Commissioner  should  have accepted that it was solvent.  Ms Tabb also advises from the bar that the applicant has settled the potential claim, and that it is now in a position to release funds to the Commissioner but it wishes to negotiate a settlement with the Commissioner.  She also says the moneys remaining are sufficient to pay the debt owed to the Commissioner and that she advised the Commissioner’s legal advisors on 3 January

2007.

[12]     By  that  time  however,  the  Commissioner  had  already  taken  steps  in opposition.  The fact also remains that the applicant was not in a position to pay its debt to the Commissioner when the demand was issued or when the Commissioner filed his documents in opposition.  It had ring fenced all of its funds to pay another potential claim.

[13]     The Commissioner is not obliged to wait indefinitely to have tax debts paid, or to accept assertions of solvency where the ability to pay is dependent upon the release of funds ring fenced to meet other potential liabilities.

[14]     I do not think therefore that the applicant has advanced sufficient reason to support a finding that the Commissioner acted other than reasonably.

[15]     If, as the applicant claims it is now able to pay the debt, the commencement or continuation of liquidation proceedings would not be appropriate.  However, the apparent change in its circumstances does not mean the Commissioner’s demand or opposition to the proceeding was unreasonable.

[16]     Ms Tabb also raised as other matters going to the Court’s discretion that the legal process was initiated by the Commissioner, that the applicant had no choice but to defend, and that the applicant told the Commissioner it would not disburse the moneys held in trust without reference to the Commissioner.  In the circumstances of this case, I do not think these are factors that are sufficient to displace the normal presumption.

[17]     The result is that I am satisfied that there should be an order for costs on the withdrawal of the application.  I make an order for costs on a 2B basis together with disbursements to be fixed by the Registrar.

Dated at Auckland on at 11.45 am.

Associate Judge Sargisson