Western Joinery Ltd v Commissioner of Inland Revenue

[2017] NZHC 3297

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-510 [2017] NZHC 3297

UNDER

the Companies Act 1993, Section 290

BETWEEN

WESTERN JOINERY LIMITED Applicant

AND

COMMISSIONER OF INLAND REVENUE

Respondent

Hearing:	On the papers
Appearances:	R J Macdonald for the Applicant S J Leslie for the Respondent
Judgment:	22 December 2017

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on  22 December 2017 at 1:30pm

pursuant to Rule 11.5 of the High Court Rules

………………………………………………….

Registrar/Deputy Registrar

Solicitors:

MBC Law Limited (John Macdonald), Auckland, for the Applicant

Crown Law (Sarah Leslie), Wellington, for the Respondent

WESTERN JOINERY LIMITED v COMMISSIONER OF INLAND REVENUE [2017] NZHC 3297 [22

December 2017]

[1]      The Commissioner of Inland Revenue seeks leave under s 56(3) of the Senior Courts Act 2016 to appeal against my decision of 6 October 2017 in which I declined to change my decision of 21 July 2017 extending the time to comply with the statutory demand for $201,692.76 served on Western Joinery Ltd on 15 March 2017.   On

22 March 2018 the Court of Appeal is to hear Western Joinery Ltd’s appeal against

Associate Judge Christiansen’s judgment upholding the statutory demand.

[2]      I directed that I would decide the leave application on the papers because there was no time available to hear the leave application during the first quarter of 2018. The Commissioner filed submissions on 20 December 2017.   I directed Western Joinery Ltd to file submissions by 21 December, but by agreement the parties sought an extension of time.  Having read the Commissioner’s submissions, I do not need to hear from Western Joinery Ltd.  It is desirable to give this matter a prompt decision.

Procedural history

[3]      On   28   March   2017,   Western   Joinery  Ltd   applied   to   set   aside   the Commissioner’s statutory demand dated 7 March 2017 served on 15 March 2017. Associate Judge Christiansen dismissed the application on 16 June 2017.1    He extended the time to comply with the statutory demand to 11:45am on 7 July 2017 when the case would be called in the miscellaneous companies list.  The parties filed a joint memorandum dated 4 July 2017. The applicant had given instructions to appeal and senior counsel in Wellington had been instructed. The memorandum advised that the parties had agreed that pending the outcome of the appeal the Commissioner would take no further steps in the proceeding and would not enforce the demand.   An adjournment was sought pending the lodging of an appeal.   Associate Judge Christiansen adjourned the matter to 21 July 2017 at 11:45am.   While Judge Christiansen did not say so expressly, time to comply with the statutory demand was extended,  given  the  Commissioner’s  indication  that  she  would  not  enforce  the

demand.  If time had not been extended but the time for complying with the demand

1      Western Joinery Ltd v Commissioner of Inland Revenue [2017] NZHC 1293.

had expired, the Commissioner would now be out of time under s 288(1) of the

Companies Act to rely on the presumption of insolvency.2

[4]      When the matter was called before me in the miscellaneous companies list on

21 July 2017, Western Joinery Ltd sought an extension of the time to comply with the statutory demand.  The Commissioner objected.  I heard submissions.  Neither side filed evidence or objected to a lack of evidence by the other side.  I extended time for complying with the statutory demand pending the appeal.  I said:3

[7]       I am adjourning this matter to 6 October 2017. That is to allow matters to be reviewed. I wish to be satisfied that the appeal is being prosecuted with due diligence and that steps have been taken to obtain a prompt hearing date in the Court of Appeal. I make an order under s 290(3) of the Companies Act extending the time to comply with the statutory demand pending further order of the court.

The Commissioner has not sought leave to appeal that decision.  She would be out of time if she were now to seek leave.

[5]      At the call on 6 October 2017 the Commissioner objected to time being extended to comply with the statutory demand. She said that Western Joinery Ltd had not progressed its appeal in a meaningful way.   She also said that she stood to be prejudiced if she could not start a liquidation application immediately because the specified period for voidable transactions is calculated by reference to the two years before the liquidation application is filed, not from any decision on a statutory demand application.4  Neither side filed any evidence for that call. While there had been some slippage, Western Joinery Ltd had met the deadline for filing the case on appeal in the Court of Appeal. I declined to revisit my decision of 21 July extending time to comply with the statutory demand.

[6]      The Commissioner filed the leave application late. The parties agreed that time for applying for leave was to be extended.5

2      The presumption runs for only 30 working days from the last day for compliance.

3      Minute of 21 July 2017.

4      Companies Act 1993, s 292(5).

5      Minute of Hinton J dated 13 November 2017.

[7]      For context, the decisions of 21 July and 6 October were made in weekly liquidation lists.  Over the last year and longer the number of cases in a liquidation morning in Auckland has been between twenty and thirty. That is because of the large number of liquidation applications brought by the Commissioner.  She is by far the heaviest user of the liquidation court. Cases must be heard and disposed of promptly. Directions are frequently given on oral applications and submissions: adjournments, restraints on advertising, extensions of time for filing defences, substitution of plaintiffs and the like.  It is standard to give immediate oral rulings.  This relatively informal approach allows for the efficient disposal of the court’s business.   That generally works for the Commissioner. An insistence on a more formalistic approach is likely to slow the court’s process.  On both calls I gave oral rulings after hearing counsel’s submissions.

The proposed appeal

[8]      The Commissioner wishes to appeal only against the decision of 6 October

2017.  Her proposed grounds of appeal are:

[a]      I erred in finding that s 290(3) gave the court power to extend the time for complying with the statutory demand pending an appeal to the Court of Appeal.

[b]       Alternatively, if there is jurisdiction:

[i]       I erred in finding that Western Joinery Ltd had prosecuted its appeal with due diligence;

[ii]      I failed to properly assess the balance of convenience; in particular, I should have required Western Joinery Ltd to provide submissions or adduce evidence in support of its application for extension of time; I did not assess the merits of the appeal; and I did not have regard to prejudice to the Commissioner;

[iii]     I erred in finding that the Commissioner was not disadvantaged by her inability to file a liquidation proceeding relying on the failure to comply with the statutory demand;

[iv]      I erred in finding the prospects of recovery under the voidable transaction provisions of the Companies Act were unlikely; and

[v]      I erred in having regard to a proposed shortening of the two- year voidable preference period under s 292.

The Commissioner says that leave to appeal should be granted because my decision of 6 October 2017 has many errors of law and it undermines the statutory scheme in Part 16 of the Companies Act and the procedures under Part 31 of the High Court Rules.

Principles on applications under s 56(3) of the Senior Courts Act

[9]      It is common ground that my decision of 6 October 2107 was interlocutory and leave to appeal is required under s 56(3).  There is guidance on applications for leave to appeal from interlocutory decisions in cases under former s 71A of the District Courts Act 1947, under which leave was required for an appeal to this court from an interlocutory decision of the District Court.  In Sandle v Stewart, Somers J said:6

The other features concerns leave.  The purpose of this is to limit the cases which may go on appeal in the interests of finality of litigation and the workload of the High Court, while preserving the integrity of the law and the interests of justice. That is shown by the principles on which leave is given – where an issue of principle is concerned, where really greater sums are involved, where on the face of it an appeal is likely to succeed.

[10]     In Cummings v Vallant, District Court Judge Hubble said:7

The Court must consider whether the interests of justice require the granting of leave in all the circumstances of the case including:

(a)  the history of the matter;

(b) the conduct of the parties;

6      Sandle v Stewart [1982] 1 NZLR 708 (CA) at 715.

7      Cummings v Vallant [1997] DCR 401.

(c)  the nature of litigation;

(d) the needs of the applicants and the effect that granting of leave would have on other persons;

(e)  any prejudice that may have been incurred; and

(f)  subsequent events and merits.

This case

[11]     In my ruling on 21 July 2017, I extended time to comply with the statutory demand pending the appeal.  I said that I applied s 290(3) but dealt with the matter as if it were an application for interim relief under r 12 of the Court of Appeal (Civil) Rules.  The purpose of the call on 6 October was to review whether Western Joinery Ltd had prosecuted its appeal with due diligence.  I did not intend to decide afresh whether Western Joinery Ltd should have interim relief.   The question whether Western Joinery Ltd had got on with its appeal was a live issue on 6 October.  It had to explain its slippage, but I was satisfied that no harm had been done. A decision not to withdraw interim relief despite alleged slippage is not an issue to grip the Court of Appeal.  That procedural ruling does not warrant an appeal.

[12]     The Commissioner tries to make more of my decision of 6 October.  In her eyes my decision can be appealed on the question whether it was correct to give interim relief at all, not just on whether Western Joinery Ltd had been slow in its appeal.   She did raise an argument as to loss of opportunity to attack voidable transactions in the hearing.  I did not consider that there was anything in the point because of the effect of the Supreme Court’s decision in Allied Concrete Ltd v Meltzer.8   I declined to revisit my decision to extend time.  The Commissioner seems to be using my refusal to revisit my earlier decision as grounds on which to attack the merits of the earlier decision.  That is an indirect attempt to get around the difficulty that the Commissioner is well out of time to challenge the decision of 21 July.

[13]     The Commissioner wishes to run new matters that were not raised in the hearings on 21 July and 6 October.  She says that there is no power to extend time

under s 290(3) after the court has given a final decision.  That is a question of law,

8      Allied Concrete Ltd v Meltzer [2015] NZSC 7, [2016] 1 NZLR 141.

which may be considered on appeal even if it was not raised at first instance.  But she also wishes to raise factual matters – evidence of further investigations by the Inland Revenue after 6 October. These are said to show ongoing defaults by Western Joinery Ltd.  That will be relevant to whether interim relief should have been ordered.  This will involve the Court of Appeal deciding itself as if were the court of first instance whether interim relief should have been ordered because of evidence not available to the court of first instance.  So long as the new evidence is admissible as fresh and cogent, that approach may be open when an appeal is on the substantive merits, but less so when a procedural ruling is under appeal. That would allow the appeal process to be used for ongoing review of procedural directions in the light of new information as it comes to hand.  That is not a good use of the Court of Appeal’s resources.

[14]     The attack on the decision to give interim relief comes to these points:

[a]       Section 290(3) is not the right power.   Rule 12(3) of the Court of

Appeal (Civil) Rules should have been used.

[b]       Western Joinery Ltd should have made a formal application, so that evidence could have been exchanged.

[c]       My exercise of the discretion was wrong.

[15]     A decision from the Court of Appeal on the scope of s 290(3) would be useful guidance. But even if the Commissioner is correct on that point, it will take the appeal only so far. It is not in dispute that there is power to give interim relief pending appeal. I referred to r 12 in my decision of 21 July.  The matter will come down to whether and how interim relief should be given.  If relief can be given only under r 12, it is hard to see the Court of Appeal setting aside the order only because of a mistaken reliance on s 290(3).

[16]     The Commissioner did not take the point at either hearing that Western Joinery Ltd should have made an interlocutory application for interim relief. She was content to deal with the matter informally when it was called each time.

[17]     As to the exercise of the discretion, the principles for interim relief pending appeal are well established and have been consistently applied by the Court of Appeal.9     There is no suggestion that those principles need reconsideration.   The Commissioner’s case seems to be that in the light of new information my decision was plainly wrong.  Even if that is arguable, it is not a good use of the Court of Appeal’s resources to run an ongoing review of procedural rulings, as I have held above.

[18]     Any appeal will be moot.  The earliest that the Court of Appeal could hear an appeal by the Commissioner is when it hears Western Joinery Ltd’s appeal. On appeal, the Court of Appeal will have all the powers of this court on an application under s 290 of the Companies Act. If the appeal is successful, my orders extending time to comply with the statutory demand will fall by the wayside.  If the appeal is unsuccessful, the Court of Appeal is likely to make fresh orders under s 291. Either way, the court will not have to consider whether it was appropriate to extend time to comply with the demand pending the appeal.  Because the appeal will be moot, there is no reason to trouble the Court of Appeal with it.

Result

[19]     Overall I am not satisfied that this is an appropriate case to give leave under s

56(3).  Accordingly, leave to appeal is declined.

Associate Judge R M Bell

9      Keung v GBR Investment Ltd [2010] NZCA 396.