Watergates NZ Ltd v Commissioner of Inland Revenue
[2024] NZHC 1128
•8 May 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-165
[2024] NZHC 1128
UNDER the Judicial Review Procedure Act 2016 and Part 30 of the High Court Rules 2016 IN THE MATTER OF
an application for judicial review
BETWEEN
WATERGATES NZ LTD
Plaintiff
AND
THE COMMISSIONER OF INLAND REVENUE
Defendant
On the papers: Counsel:
R B Hucker and M W Swan for Plaintiff J B Cheng for Defendant
Judgment:
8 May 2024
JUDGMENT OF GRAU J
Introduction
[1] The applicant, Watergates NZ Ltd (Watergates), seeks judicial review of a decision by the respondent, the Commissioner of Inland Revenue (the Commissioner), to decline Watergates’ request to enter into an instalment arrangement to pay its tax arrears.
[2] The Commissioner has admitted he failed to consider Watergates’ financial position adequately, as he is required to. He consents to the entry of judgment based on that admission.
WATERGATES NZ LTD v THE COMMISSIONER OF INLAND REVENUE [2024] NZHC 1128 [8 May 2024]
[3] The parties disagree, however, about the orders that should be made. The Commissioner considers the only relief granted should be an order setting aside or quashing the decision, and remittance of the application back to the Commissioner to consider Watergates’ payment proposal in accordance with the law. Watergates seeks wider orders to direct the Commissioner about the matters he is required to reconsider.
[4] The parties also disagree about the costs that ought to be imposed. The Commissioner agrees he should pay Watergates’ costs in this case but disagrees he should pay the amount Watergates claims.
[5] The parties agree the Court should make its decision on the basis of written submissions. Accordingly, this decision will enter a judgment, and decide what orders are appropriate.
Judgments on admission of facts
[6] Judgments on admission of facts may be entered pursuant to r 15.15(1) of the High Court Rules 2016 (the HCR), which states:
15.15 Judgment on admission of facts
(1) If a party admits facts (in the party’s pleadings or otherwise), any other party to the proceeding may apply to the court for any judgment or order upon those admissions the other party may be entitled to, without waiting for the determination of any other question between the parties, and the court may give any judgment or order on the application as it thinks just.
[7] As can be seen in the text of r 15.15(1), if a party admits facts, another party may apply for entry of judgment on those admissions. Rule 15.15 may require the Court to determine liability and further assess the effect of the admission if necessary;1 an acknowledgment of liability by way of an admission of fact is “simply evidence on which judgment may be entered if a judge considers it just on application under r 15.15”.2 As Arnold J explained in P v Bridgecorp Ltd, r 15.15 presumably provides for judicial evaluation “because there may be scope for argument as to how far an
1 If, for example, where the admission of fact relates to only part of the relevant circumstances of a matter; Termijtelen v Van Arkel [1974] 1 NSWLR 525.
2 P v Bridgecorp [2013] NZSC 152, [2014] 1 NZLR 195 at [24].
admission of fact goes and what order or judgment it entitles the other party to obtain”.3 That said, on a consented application under r 15.15, it also appears that judgment can be entered without exhaustive discussion of the relevant facts.4 In the present case Watergates points out that it is important to determine the facts that create an issue estoppel. Ultimately, whether to enter a judgment pursuant to r 15.15 is in the Court’s discretion.5
What happened in this case?
A proposal is made to pay outstanding tax by instalment
[8] On 9 March 2023, Watergates applied to the Commissioner, pursuant to s 177 of the Tax Administration Act 1994 (the Act), to enter into an instalment arrangement to pay tax arrears (the Proposal).
[9] The Proposal was the latest of a number of proposals by Watergates to pay its tax arrears by instalment, after the Commissioner had sought a liquidation order because of Waterstones’ failure to pay its arrears, then totalling $312,916.88.6 In its proposal Watergates outlined additional payments it had made towards the tax arrears since the date of its last proposals. The Proposal also suggested:
(a)$120,000 would be paid to the IRD in reduction of PAYE debt within seven working days of notification of acceptance;
(b)Mr Ross Nolan, the director of Watergates, would guarantee the current outstanding tax debt and enter into an agreement to mortgage his property in Taupō with a caveat in favour of the Commissioner;
(c)the balance of the remaining tax arrears would then be paid in 18 equal monthly instalments commencing from 29 April 2023;
3 At [115].
4 See, for example, Mather v O’Keeffe [2012] NZHC 2240.
5 P v Bridgecorp, above n 2, at [27].
6 Watergates did not dispute it owed the tax in question.
(d)all tax obligations would remain current and UOMI (use of money interest) would accrue on any outstanding amounts; and
(e)upon the lodgement of the caveat the liquidation proceedings would be discontinued with costs allowed to the Commissioner.
[10] The Proposal also included further evidence attached to an affidavit of Mr Nolan, which included Watergates’ latest MYOB trading performance figures, showing that Watergates was meeting and exceeding the forecasted trading performance as detailed in the previous proposal on 28 November 2022. A copy of projections and cashflow forecasts produced by an accountant were also attached, as well as an email letter from the accountant. The affidavit also included a copy of all the forward orders and contracts that were provided to the accountant to complete the cashflow forecast.
The Proposal is declined
[11] The Commissioner responded to the Proposal by letter dated 21 March 2023 (the Decision). The Decision details the long timeline of Watergates’ non-compliance with its tax obligations. It states that “Inland Revenue has no confidence the company will be able to meet the obligations of any arrangement or maintain its ongoing tax obligations”. The Commissioner was of the view that it had provided “significant opportunities” for Mr Nolan to correct his tax position. The Commissioner’s understanding was that the proposed caveat would not improve the Inland Revenue Department’s (IRD’s) standing as a creditor nor impact the compliance of Watergates in meeting future tax obligations. The offer of lump sum payments was declined and the IRD continued to require payment in full.
What happened next?
[12] Watergates filed a statement of claim (SOC) dated 29 March 2023, alleging illegality, material mistake of fact, and unreasonableness.
[13]The Commissioner’s statement of defence denied his Decision was flawed.
[14]The Commissioner then applied for an order for security for costs.
[15] Following the security for costs hearing on 9 August 2023, the Commissioner reconsidered the merits of Watergates’ position. The parties then exchanged without prejudice except as to costs offers on 14 and 17 August 2023.
[16] In a memorandum of 7 September 2023, the Commissioner stated that his consideration of Watergates’ financial position appeared to have been inadequate in terms of the requirements in s 177(1B) of the Act. The Commissioner wished to resolve the matter by reconsidering the Proposal. The reconsideration would be treated as a new request under s 177 with the opportunity for Watergate to provide updated information. If the Commissioner accepted the Proposal after reconsideration, an amount equivalent to the penalties and interest that had accrued since the date of the decision should be remitted on the facts of this case. The Commissioner also stated he did not accept any other allegations made by Watergates.
[17] It appears that Watergates asked the Commissioner to “formally” concede in an amended statement of defence or admission of claim, and the Commissioner then filed his formal admission on 29 September 2023, repeating what he had set out in the memorandum of 7 September 2023.
What the Commissioner was required to consider
[18] Section 177 of the Act requires the Commissioner to consider a taxpayer’s request to enter into an instalment arrangement with the Commissioner.7 In particular, the Commissioner is required to consider the taxpayer’s financial position at the date on which the request for financial relief is made.8
[19] Section 177B sets out the reasons why the Commissioner may (or in some instances must) decline to enter into an instalment arrangement under s 177, including when the Commissioner considers the taxpayer is in a position to pay all of the outstanding tax immediately, or the taxpayer has not met their obligations under a
7 Tax Administration Act 1994, s 177(1)(b).
8 Section 177(1B).
previous instalment arrangement.9 An instalment arrangement may also be renegotiated, with renegotiation to be treated as a new request for financial relief.10 The Commissioner may cancel an instalment arrangement if it was entered into on the basis of false or misleading information, or where the taxpayer is not meeting their obligations under the arrangement.11
[20] Section 177 exists within the context of the wider obligations on the Commissioner under the Act and must be read together with them.12 Section 176 requires the Commissioner to maximise the recovery of outstanding tax from a taxpayer, but the Commissioner should not do so to the extent that recovery is an inefficient use of resources or recovery would place a taxpayer into hardship.13 The Act is also subject to the overriding responsibility in s 6 of the Act that Ministers and officials use their best endeavours to protect the integrity of the tax system. Section 6A(2) also sets out that, in the duty of the Commissioner to collect over time the highest net revenue that is practicable, the Commissioner must have regard to:
(a)the resources available to the Commissioner; and
(b)the importance of promoting compliance, especially voluntary compliance, by all persons with the Inland Revenue Acts; and
(c)the compliance costs incurred by persons.
[21] At the time the proposal was made, the Tax Administration (COVID-19 Response Variations) Order 2022 was in place. Accordingly, s 6I of the Act—which allowed the Commissioner to vary the application of a provision in an Inland Revenue Act in response to the COVID-19 pandemic—remained in force until 30 September 2023.
Why the Commissioner’s decision was flawed
[22] Close assessment of the Commissioner’s decision shows little consideration of the evidence of Watergates’ financial position, as s 177(1B) of the Act requires. There
9 Section 177B(2).
10 Sections 177B(3), 177B(4), and 177B(5).
11 Section 177B(6).
12 Kea v Commissioner of Inland Revenue (2011) 25 NZTC ¶20-084 [Kea] at [85].
13 In the latter case, the Commissioner may take steps to bankrupt the taxpayer (s 176(3)).
was only very limited reference to the financial accounts and other evidence provided by Mr Nolan. There was no consideration of the impact of COVID-19 on Watergates’ business even though, at the time of the Proposal, that factor was also required to be considered under s 6I of the Act. There was no attempt to assess or consider the extent to which compliance with the 28 November proposal following liquidation proceedings and Watergates’ trading results demonstrated an ability to pay its historic tax arrears. Nor was any consideration given to making a counteroffer under s 177(3)(c).
Entry of judgment in this case
[23] As above, I have considered the Proposal and the Decision to decline it, and the submissions of the parties.
[24] The Commissioner concedes that his decision was flawed as he did not adequately consider Watergates’ financial position at the date the Proposal was made. Accordingly, I enter judgment against the Commissioner. As noted above, however, the issue remains as to the appropriate orders and costs in the case.
What relief should be ordered?
Relief that may be ordered
[25] Relief under the Judicial Review Procedure Act 2016 (the JRPA) is at the Court’s discretion.14 If an applicant is entitled to an order that the exercise of a statutory power of decision is unauthorised or otherwise invalid, instead of making that order, the Court can simply set the decision aside.15 In addition to, or instead of, relief under s 16, the Court may also, under s 17, direct reconsideration of a matter to which the statutory power of decision relates, either generally or in respect of any specified matters.
14 Middeldorp v Avondale Jockey Club Inc [2019] NZHC 901, [2019] NZAR 738 at [195].
15 Judicial Review Procedure Act 2016 (JRPA), s 16(2).
The positions of the parties
[26] Mr Hucker for Watergates submits that, had the Proposal been accepted, the amount outstanding for historic tax debt (taking into account the payments made but excluding ongoing penalties and interest) would have been $227,725.87. With the
$120,000 lump sum offered in the Proposal, the outstanding residual indebtedness would be just over $100,000. Penalties would not have been charged on the outstanding assessed amounts had the Proposal been accepted in March 2023, therefore, Mr Hucker says that the reconsideration of the Proposal must be done as at 9 March 2023, with an effective date of 20 March 2023. Mr Hucker submits that there is no jurisdiction to require the reconsideration to be treated as a new application under s 177 of the Act and this would be disadvantageous to Watergates.
[27] Mr Hucker says that the Court should give a direction under s 17(4) of the JRPA, identifying aspects of the decision-making process which were inadequate and providing directions in regard to those aspects. On this basis, the directions sought by Mr Hucker (in addition to setting aside the Decision) are:
(a)the Commissioner, in reconsidering its Decision, take into account the matters referred to in [14(a)]–[14(i)] of Watergates’ SOC;16
(b)the Commissioner, in reconsidering its Decision, must not take into account the matters referred to in [15(a)]–[15(d)] and [15(g)] of the SOC;17
(c)any internal policies or directives relied upon by the Commissioner in its reconsideration must be disclosed to Watergates;
(d)the Commissioner is to remit any penalties and interest on the outstanding tax debt for the period from 9 March 2023 to the date on which the reconsideration decision is made;
16 Those are the matters Watergates says should have been taken into account in the s 177 assessment, had the decision-making process been adequately undertaken.
17 Those are matters that are said to “go to the adequacy of the Commissioner’s processes”.
(e)the Commissioner is not to issue any decision for the period of 30 working days from the date of judgment to enable updated projections, accounting information and other documentation relevant to the application to be provided to the Commissioner by Watergates; and
(f)in the event the Commissioner declines the Proposal upon reconsideration, the Commissioner should consider making a counteroffer in good faith under s 177(3)(c) rather than simply advising that no payment plan proposal is acceptable or will be considered.
[28] Mr Hucker acknowledges the wide discretion given to the Commissioner by s 177 of the Act but says that these considerations all go to the adequacy of the Commissioner’s processes and do not fetter his discretion. He submits none of these directions affect the substantive decision to be made.
[29] Ms Cheng, for the Commissioner, says that the relief orders sought by Watergates that go further than quashing the Decision and directing the Commissioner to reconsider the Proposal impose guidelines on the Commissioner’s exercise of his broad discretion beyond the boundaries in the statutory framework. It would be inappropriate for the Court to do so, given the nature of the decision to be made. Ms Cheng also submits that, given the time that has passed since the Proposal was made on 9 March 2023, any reconsideration can only sensibly be treated as a new request. She says that it would be “nonsense” for the Commissioner to reconsider the proposal as at 20 March 2023 but with financial information provided as at a current date, as Watergates proposes.
Relevant authorities
[30] In the case of Kea v Commissioner of Inland Review (Kea), Ronald Young J had to consider the issue of relief in similar circumstances to the present. Ms Kea had submitted a proposal based on income from a contract which she hoped would be extended but was not. His Honour held that reconsideration of the proposal would “no longer serve any useful purpose” because “[t]he factual basis on which the application
has been made no longer exists”.18 He explained that it would be “absurd” to ask to the Commissioner to reach a decision on a proposal in respect of which the facts no longer apply, and it remained open to Ms Kea to make a new application.19
[31] Justice Ronald Young also rejected the proposition that s 177B(2) of the Act was a “code” for the purposes of setting out the grounds to reject an instalment arrangement proposal.20 His Honour noted the co-existing obligations and public interest purposes in ss 6 and 6A of the Act.21 He said that s 177B(2)(a) provides the Commissioner with “very wide grounds” to decline an offer of payment by instalments.22 Ms Kea’s history in failing to meet her tax liability provided ample evidence upon which the Commissioner could reject her proposal because it would not maximise the recovery of outstanding tax.23
[32] In Raynel v Commissioner of Inland Revenue, Randerson J explained that the interconnected duties and considerations in the Act means “the Commissioner has a wide managerial discretion as to the best means of obtaining the highest net return” of tax.24 His Honour also found that “the considerations relevant to the exercise of the Commissioner’s duty [under s 6A] are not limited to issues of practicality, resources, and costs”.25 Relevantly, Randerson J stated:26
It is difficult and undesirable to give precise guidelines to the Commissioner other than the statutory considerations themselves. It will be a matter for the Commissioner to carry out his duty, having regard to the relevant considerations as they apply in individual cases and circumstances.
Discussion
[33] I start by accepting Ms Cheng’s submission that the Commissioner’s decision in accepting or rejecting a proposal under s 177 is a multi-faceted exercise of
18 Kea, above n 12, at [73].
19 At [74].
20 At [78].
21 At [79]–[80] and [85]–[86]; that s 177B is to be read in line with these obligations was affirmed by the Court of Appeal in Russell v Commissioner of Inland Revenue (No 2) [2015] NZCA 351, (2015) 27 NZTC ¶22-018 at [22].
22 At [86].
23 At [93].
24 Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 at [51].25 At [52].
26 At [56].
judgement that has a number of policy and commercial considerations, and also affords a broad discretion within the statutory boundaries. The s 177B factors allowing the Commissioner to reject a proposal are not a closed list. Sections 177 and 177B must be read with the Commissioner’s broader obligations under ss 6 and 6A of the Act, including broader public interest factors such as using his best endeavours to protect the integrity of the tax system.27 I agree with Ms Cheng that directing the Commissioner take into account specific considerations when he reconsiders Watergates’ proposal appears to go beyond the boundaries provided by the statutory framework and cuts across the broad discretion conferred on the Commissioner.
[34] I also agree with Ms Cheng that many of the guidelines Watergates wants the Court to require the Commissioner to consider are for the most part factual assertions, the reliability of which are for the Commissioner to assess.28 On the other hand, matters that Watergates asserts are irrelevant to the Commissioner’s consideration under s 177 may well be relevant. For example, Watergates’ failure to comply with its tax obligations in the past will be a relevant factor for the Commissioner’s assessment, as per the authority in Kea. I agree too that it is unnecessary to require the Commissioner to disclose internal policies or directives the Commissioner relies on in his reconsideration. Nor should the Court order disclosure that potentially covers legally privileged advice. And any direction that the Commissioner must consider a counteroffer provides nothing more than what is already in s 177(3).
[35] I am also of the view that any reconsideration by the Commissioner should be on the basis that it is a new proposal. As Ronald Young J put it in Kea, it would be absurd to require the Commissioner to consider a proposal based on facts that existed over a year ago. Ms Cheng also points out that, under s 177(4), the taxpayer has 20 working days (or longer if allowed by the Commissioner) to provide information sought or to respond to a counteroffer. Under subs (5), if the Commissioner receives information outside of that time period, the receipt of information or the response will be treated as a new request for financial relief. Thus, it also appears consistent with
27 Tax Administration Act, s 6(1).
28 For example, the strength of Watergates’ financial position as shown in its forecasts and accounting records.
the statutory scheme to require the reconsideration to be considered as a new request for relief.29
[36] I agree too that, if the Commissioner accepts Waterstones’ new proposal, a sum should be remitted equivalent to the penalties and interest that have accrued since the date of the decision. However, if the Commissioner declines the proposal, I agree with Ms Cheng’s suggestion that there would be no basis for remission of the penalties and interest that have accrued on Watergates’ tax arrears since 9 March 2023.
[37] Finally, I comment that it is unclear why Watergates seeks to rely on s 6I of the Act or how it would be relevant to the reconsideration decision. The discretionary power to vary the application of a provision in an Inland Revenue Act under s 6I is only to be used when the Commissioner considers that an appropriate outcome is not possible or difficult to achieve under the terms of an existing provision.30 The Proposal was not made in reliance on s 6I either, nor do I think Watergates has shown a failure to apply s 6I in circumstances where an appropriate outcome could not be achieved under other existing provisions. While I can accept Mr Hucker’s point that the Commissioner was required to consider s 6I at the time the Proposal was submitted, to make a direction to this effect would do nothing more than restate the law. Further, given my reasoning above that reconsideration should be treated as a new request for relief, s 6I (as I understand it) would not apply because the relevant (COVID-19 related) order was set to lapse on 30 September 2023.
[38] In summary, the appropriate relief that would vindicate Watergates’ concerns without cutting across the Commissioner’s broad statutory discretion is orders in the form sought by the Commissioner; that is, orders setting the Decision aside and remitting the application to the Commissioner to consider a new proposal in accordance with the law. For the avoidance of any doubt, any new proposal may be on similar or different terms to the 9 March 2023 Proposal.
29 Strictly speaking, setting aside the Decision would mean the position is as if the Decision was never made. In other words, the Commissioner would not be “reconsidering” anything, so that a new proposal would be required for him to consider.
30 Tax Administration Act, s 6H(3).
What costs award should be made?
[39] Costs are at the discretion of the Court.31 Watergates seeks an award of increased costs, and the Commissioner seeks reduced costs. Despite the starting point that costs are intended to be predictable and expeditious,32 the Court may order a party to pay increased costs under r 14.6(3) or reduce the costs awarded to a party claiming costs under r 14.7 of the HCR. Increased costs may be ordered where there is a failure by the paying party to act reasonably.33 Costs can be increased or reduced where a party has pursued an unnecessary step or argument and that step has contributed unnecessarily to the time or expense of the proceeding. Similarly, costs can be increased or reduced where a party unreasonably denies pleaded allegations of fact that ought properly to have been admitted, and those facts are established.34
[40] The position is somewhat complicated where Watergates and the Commissioner have both made without prejudice offers save as to costs for the resolution of the litigation. Increased or reduced costs where a party has imprudently failed to accept such an offer are permitted by rr 14.6(3)(b)(v) and 14.7(f)(v) respectively.35 Whether a party has unreasonably rejected a settlement offer involves a fact-specific enquiry, as does the effect on costs arising from any such unreasonable rejection.36 The focus is on the conduct of the recipient of the offer and, if unreasonable, the degree to which that conduct contributed unnecessarily to time and expense in the proceeding. The reasonableness of the party’s decision is assessed at the time the offer is rejected.37
31 High Court Rules 2016 (HCR), r 14.1.
32 Rule 14.2(g).
33 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27]. An increase of more than 50 per cent above scale costs will generally be considered excessive; Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [48].
34 Rules 14.6 and 14.7.
35 Rule 14.11 also applies to the making of a written offer without prejudice save as to costs. It is a cost-shifting rule that means a party is entitled to costs on steps taken in the proceeding after an offer is made in certain circumstances. However, the utility of r 14.11 is reduced where more than one party has made such an offer; the mechanical application of r 14.11 to cost-shift is effectively cancelled out where both sides have made offers that have been rejected.
36 Weaver v HML Nominees Ltd [2016] NZHC 473 at [30]–[32].
37 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [3.11].
[41] As to costs, Mr Hucker says costs are appropriately assessed on a 2B basis with an increase of 50 per cent. In reliance on r 14.6(3)(b)(ii) of the HCR, Mr Hucker submits it must have been clear from the Decision that the Commissioner had not complied with s 177(1B), and so the Commissioner’s admission could have been made at the commencement of proceedings. Similarly, the Commissioner applied for security for costs on the basis that Watergates’ claim had no merit, but shortly after filed its admission of claim. The Commissioner also filed substantive evidence requiring attendance at a security for costs hearing, only to reduce the quantum sought from over $22,000 to $7,500 at the commencement of the hearing. Mr Hucker says that, had a lower amount initially been sought, it may have resulted in Watergates consenting to security for costs or at least a determination on the papers. Mr Hucker assesses a total of $38,095 in costs and disbursements.
[42] The Commissioner accepts he should pay costs, but Ms Cheng says that the costs award should account for what she says is Watergates’ unreasonable decision not to accept a settlement offer. On 14 August 2023, Watergates had made a Calderbank offer to settle the proceeding on the basis that the Commissioner accept without reconsideration a proposal similar to the 9 March 2023 Proposal. The Commissioner declined and made his own offer on 17 August 2023. The Commissioner’s offer was on the same terms as the orders the Commissioner now seeks, but with costs proposed to lie where they fall. Watergates rejected the Commissioner’s offer.
[43] The Commissioner considers that Watergates’ failure to accept the 17 August 2023 offer, and its failure to engage meaningfully in settlement discussions from that date, has resulted in unnecessary steps being taken by both parties. As a result, the costs award in favour of Watergates should not include the 2B costs of steps taken by Watergates after 17 August 2023, and should deduct the 2B costs of steps taken by the Commissioner after this date in reliance on rr 14.7(iii) and (iv). In the alternative, all steps taken by both parties after 7 September 2023 have been unnecessary and the costs award should reflect this.38
38 7 September 2023 being the date the Commissioner filed its memorandum conceding its error in respect of the Decision.
[44] Ms Cheng also says there is no basis for an increased costs order against the Commissioner. She says that Mr Hucker is wrong to assert that the Commissioner should never have attempted to defend the proceedings. There was a reference to Watergates’ accounts in the Decision, so the accounts had clearly been reviewed at the time that Watergates’ Proposal was considered. However, once the merits of the matter were at issue (in the hearing of the application for security for costs), the Commissioner’s view changed, and he appropriately conceded his consideration of Watergates’ financial position was inadequate to comply with s 177(1B). Ms Cheng also describes Watergates’ claim that it might have consented to a lower security for costs sum as speculative at best, but unlikely in any case.
Discussion
[45] As a preliminary point, I do not accept Ms Cheng’s suggestion that there is an error in Watergates’ calculation of costs on a 2B basis (minus the uplift). The two notations in respect of preparing written submissions accord with preparation for the security for costs hearing and the current on the papers decision. The notation for costs of “obtaining judgment without appearance” also appears to be sought in respect of this decision. Similarly, seeking costs to seal this judgment also seems reasonable.
[46] Turning to the effect of the without prejudice save as to costs offers made by each party, I do not consider that either party acted unreasonably in these proceedings, nor was the rejection of each other’s offer unreasonable in these circumstances. Therefore, I do not think an award of increased or reduced costs should be made.
[47] I would accept Mr Hucker’s argument that it was not unreasonable for Watergates to reject the settlement offer from the Commissioner because it offered nothing more than the setting aside of the Decision and reconsideration under s 177, which Watergates would be entitled to anyway following the Commissioner’s admission. Mr Hucker also emphasises that Watergates’ initial offer dealt substantively with issues in both adjacent liquidation and the current judicial review proceedings, which would have resolved two proceedings in one. Offering for costs to lie where they fall would also seem disadvantageous to Watergates, given what I
assume would have been its expectations that it receive costs as the winning party in the usual way.
[48] I also agree with Mr Hucker that the language used by the Commissioner in “admitting” its error prior to the formal admission being filed on 29 September 2023 was rather equivocal and warranted the request of a formal admission by the Commissioner. For example, the Commissioner in his memorandum of 7 September 2023 only said the decision-making process “appears” to have been inadequate, when merely weeks earlier on 28 August 2023 he had said he “did not necessarily accept that there was an error with the decision”. I would therefore accept Mr Hucker’s suggestion that Watergates request for a formal admission was not unreasonable, nor has its rejection of the Commissioner’s without prejudice offer been unreasonable.
[49] Similarly, I do not think that the Commissioner acted unreasonably in rejecting Watergates’ without prejudice offer. There are material areas of disagreement in the offer that were legitimate, for example, whether penalties would be charged after 9 March 2023 irrespective of the outcome of the Commissioners’ reconsideration and the requirement that the Commissioner discontinue liquidation proceedings. To hold the Commissioner to such conditions would appear to cut across the Commissioner’s discretion under the Act (both in s 177 and otherwise) in quite a significant way. As I expressed above, where the Commissioner has only really accepted one error in his decision-making process, I agree with his suggestion that Watergates’ without prejudice offer seems to be an “overreach”.
[50] Nor do I agree the Commissioner has acted unreasonably such that a 50 per cent increase in costs is justified. The Commissioner’s reassessment of his position following the security for costs hearing does not in my view support an inference that the Commissioner was endeavouring to make it more difficult for Watergates to get a proper review of the decision-making process in the hopes that Watergates would abandon its claim. This is a serious allegation, but I am unable to discern a clear basis for it.
[51] Nor was it unreasonable for the Commissioner to defend Watergates’ claim for as long as it did. While the Decision itself is sparse in its assessment of Watergates’
financial position, it does clearly show some consideration of the evidence provided by Mr Nolan, for example in referencing the property that Mr Nolan offered to mortgage in the Commissioner’s favour. Thus, I do not consider the Commissioner’s position was so clearly untenable it did not warrant at least an attempt at a defence. That said, there is some irony (and unnecessary inconvenience) in the Commissioner initially applying for security for costs on the basis that Watergates’ claim had little chance of success and then subsequently consenting to a judgment being made against it. In those circumstances, a modest uplift appears warranted to account for what appears to have been a pointless application for security for costs.
[52] For these reasons, I conclude that costs should be awarded in Watergates’ favour on a 2B basis as set out in Watergates’ schedule for costs, with a five per cent uplift to reflect the unnecessary inconvenience of the security for costs application. I do not consider a reduction in costs is warranted, nor any tempering of the costs award on the basis of the without prejudice offers made by either party.
Result
[53]I grant the following relief in this case:
(a)that the Decision declining financial relief under s 177(3) of the Act be set aside pursuant to s 16 of the JRPA;
(b)that the Commissioner be directed to reconsider whether to enter into an agreement for payment by instalments in accordance with the law;
(c)Watergates may provide updated information about its financial position and is to provide any such updated information, should it wish to do so, within 20 working days of the Court making its orders; and
(d)the Commissioner is to consider any updated information provided by Watergates as part of a reconsideration of the Proposal as a new request for financial relief under s 177.
[54] I award Watergates costs on a 2B basis, with a five per cent increase to account for the Commissioner’s unnecessary security for costs application.
Grau J
Solicitors:
Molloy Hucker, Auckland for Plaintiff Crown Law, Wellington for Defendant
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