Central Equipment Company Ltd v Commissioner of Inland Revenue [2007] NZCA 468; (2008) 23 NZTC 21,722 (29 October 2007)

Last Updated: 30 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA233/06 [2007] NZCA 468

BETWEEN CENTRAL EQUIPMENT COMPANY LIMITED
Appellant

AND THE COMMISSIONER OF INLAND REVENUE
Respondent

Hearing: 17 September 2007

Court: Hammond, Robertson and Arnold JJ

Counsel: C J Faloon in Person
J A L Oliver and N Breedon for Respondent

Judgment: 29 October 2007 at 2.15 pm

JUDGMENT OF THE COURT

1. The application for special leave to appeal is determined in part. The remaining issues are adjourned for further argument in terms of this judgment.
2. We find that Mr Faloon has no authority to advance the present application in person.

100. The application is adjourned for further consideration as to whether Mr Faloon has authority to represent Central Equipment Company Ltd on that application.

4. There will be timetable directions in terms of [36] of this judgment.
   

REASONS OF THE COURT
(Given by Hammond J)

Introduction

[1] On 2 October 2006 in the High Court at Hamilton, Associate Judge Faire ordered that Central Equipment Company Limited be put into liquidation, on the application of the Commissioner of Inland Revenue (the CIR) (CIV 2003-470-923). The application was made because the company had not paid certain taxation monies. Mr D C Parsons and K L Kennealy were appointed liquidators.
[2] Mr Faloon and (it seems) members of his family have had a long association with Central Equipment Company Limited. Quite what his formal “association” with the company is cannot presently be established.
[3] In any event, Mr Faloon objected to the company being placed into liquidation. On 12 October 2006, in his personal capacity, he lodged an application for special leave to bring a civil appeal against the judgment of Associate Judge Faire.
[4] As is often the case with litigants in person, Mr Faloon’s command of civil procedure is less than compelling. He has got himself into a procedural mess. This has made this litigation difficult for this Court to resolve. It has no doubt been frustrating for Mr Faloon also.
[5] The application came before this panel because Chambers J directed that the application be listed “for directions” in an endeavour to produce a degree of order out of chaos.
[6] We deal with Mr Faloon’s arguments that he is personally entitled to prosecute an appeal against the company having been placed into liquidation. We reserve for the subsequent determination of the Court – not necessarily by this panel – whether the company itself, or Mr Faloon as its agent, has any present ability to advance an appeal against the liquidation order.

Background

[7] Mr Faloon and his family and their companies, Central Equipment Company Limited and Trade Lines Limited, have a long and litigious history in New Zealand courts. Mr Faloon and his family have a deep sense of grievance, the history of which is conveniently set out in a decision of Gendall J: Faloon v Attorney-General HC WN CP310/99 5 October 2000. Indeed there have been at least 13 decisions of the High Court and Court of Appeal in various proceedings brought by Mr Faloon and his associated entities.
[8] What we will term “the liquidation proceedings” began on 9 October 2003. The CIR served a statutory demand on Central Equipment Company Limited, alleging defaults in payment of GST and claiming payment of $94,849. This amount was later reassessed, and reduced to about $77,000. Central Equipment Company Limited applied to have the demand set aside (CIV 2003-470-856, reported at (2006) 22 NZTC 19,891 (HC)). The CIR contemporaneously applied to have Central Equipment Company Limited placed in liquidation (CIV 2003-470-923).
[9] These two proceedings were heard together before Associate Judge Faire. On 10 May 2006 he refused Central Equipment Company Limited’s application to set aside the statutory demand, and adjourned the liquidation proceedings. There were then various callovers and adjournments at which Mr Faloon “appeared” on behalf of Central Equipment Company Limited. The company was eventually placed into liquidation.

What decision is under appeal?

[10] Mr Faloon does not purport to appeal against the decision of Associate Judge Faire in CIV 2003-470-856 refusing to set aside the demand. As Mr Oliver pointed out, Mr Faloon lodged a Notice of Appeal against this decision in June of 2006, but that Notice of Appeal was rejected for want of form.
[11] Mr Faloon also filed in the Court of Appeal the application for special leave in respect of the liquidation proceedings. We note in passing that his central complaint in respect of the liquidation proceedings appears to be that Central Equipment Company Limited was not given notice of the hearing on 2 October 2006. However, in fairness to Mr Faloon, he indicated in his Notice of Appeal in the liquidation proceedings that he sought to appeal against “all aspects of this decision”.

Who is the appellant?

[12] In a special leave application dated 12 October 2006 Mr Faloon styles himself as a “patentee” and “controlling person” of Central Equipment Company Limited. Mr Faloon has difficulty distinguishing his rights and interests from those of Central Equipment Company Limited. Throughout his voluminous papers he has made various assertions of various interests in Central Equipment Company Limited.
[13] One is that he is a creditor and a surety. If Mr Faloon is in fact a creditor, then he would have been entitled to apply for liquidation of the company (see s 241(2)(c) of the Companies Act 1993). He would also have been entitled to have his views taken into account by the Court in making its decision whether to place Central Equipment Company Limited in liquidation: see Brookers Company and Security Law (looseleaf ed) at CA241.04(2), asserting the proposition that the Court should take into account the wishes of the majority of creditors when exercising its discretion in the appointment of a liquidator.
[14] Mr Faloon would also, as a creditor, have standing to apply for a stay of the liquidation proceedings. He in fact applied for a stay pending the hearing of this appeal, which was granted by Associate Judge Faire on 28 February 2007 (although this was not in his capacity as a creditor). That decision is reported at (2007) 23 NZTC 21,243 (HC).
[15] However, the fact that Mr Faloon may have had standing as a creditor of Central Equipment Company Limited to be heard in the liquidation proceedings, and that he was entitled to a stay, does not now permit him to appeal against the decision to which he was not a party. The appellant must be the company itself: it is Central Equipment Company Limited which asserts that it was not served with the notice of the 2 October 2006 hearing, and it is the company which contends the liquidation order and judgment were irregularly obtained.
[16] The appellant cannot be Mr Faloon in his personal capacity because he was not a party to the decision appealed against. Indeed this was made clear by Associate Judge Faire at [16] of his 10 May 2006 judgment when he said: “... it must be emphasised that [Mr Faloon] is not a party to the proceedings. His personal rights, obligations and duties are not directly relevant to the issues which I must examine in this application.”
[17] The appellant in CA233/06 can only be Central Equipment Company Limited, not Mr Faloon. The company has not yet been liquidated, so it still exists. The liquidators have indicated that (at least to this point) they do not wish to be heard in this matter.
[18] Mr Faloon has also asserted he is able to appear for the company because he is a patentee, or so he asserts, of certain patent rights said to have been held by Central Equipment Company Limited. He says that he is therefore a “corporation sole”. Therefore, to his mind, he is a corporate personality with the ability to prosecute an appeal. The argument is misconceived. Whatever personal rights or statuses Mr Faloon has elsewhere cannot be conflated with the position of the company.

Representation in the High Court

[19] It is apparent that the Associate Judge was placed in a very awkward position in relation to the matters which were aired at considerable length before him. The application to set aside the statutory demand was heard at some length on dates in August and December 2004, November 2005, and May 2006.
[20] Mr J Holmes appeared for Central Equipment Company Limited for part of the hearing. The appearances recorded in the 10 May 2006 judgment include, “Mr Faloon a director and shareholder of Central Equipment Co Ltd given leave to appear for the applicant”.
[21] On closer examination, what that judgment of 10 May 2006 reveals is (see [8] – [16]) that Mr Holmes appeared for part of the hearing, was given leave to withdraw, but he nevertheless continued, and very responsibly so, to assist the Court where he could.
[22] Mr Faloon’s status was in some doubt. He was adjudicated a bankrupt in 1997, which would have terminated any directorship he held. There was some doubt whether he had ever subsequently been re-appointed. The Associate Judge noted that (at [10]), “Had the matter remained on the basis that Mr Holmes was not continuing to act on tax matters, I would not have allowed Mr Faloon to intervene without at least some proof of his authority to speak on behalf of the company.” This is because in most situations companies are required to be represented by a person on the Roll of Barristers and Solicitors (Re G J Mannix Ltd [1984] 1 NZLR 309 (CA)).
[23] The Judge was concerned to see that the tax matters were tidied up, with the assistance of Mr Holmes and Mr Hardie. So the Associate Judge ended up in the position that Mr Holmes was there to assist on some matters, but not on others. The Judge made the limitation on Mr Faloon’s position abundantly plain at [16] (see above at [16]). A limited appearance was given to Mr Faloon “on any matter relevant to the application to set aside the statutory demand” (at [13]).
[24] It may have been better if the Associate Judge had definitively resolved the Mannix point, not least because given that these matters have almost always proceeded on appeal in connection with Mr Faloon, it was leaving room for the next problem. That is whether, notwithstanding the very limited right of audience given to Mr Faloon before the Associate Judge, the application for leave to appeal has been properly brought by him?

By whose authority has the appeal been brought?

[25] The appellant is Central Equipment Company Limited. So the next issue which arises is the authority by which that appeal was brought. Mr Faloon has described himself as the controlling person of the company. Whether he is a director has not been established. He is not the sole or even a majority shareholder for he apparently holds only 1,000 of 8,000 issued shares. The majority of shares are held by the Public Trust as trustee for Mr Faloon’s father’s estate: see the 10 May 2006 decision of Associate Judge Faire at [12].
[26] It is trite law that a company may only act by way of its human agents. At least on the material which is in court at the moment the likely answer is that Mr Faloon is not in that position. He is a minority shareholder and may not even be a director. No minutes of a board meeting at which a decision was taken about this appeal have been produced, nor has the company resolved to appoint counsel. At least on the material which is available to us at this time it appears unlikely that Mr Faloon has the authority to act for Central Equipment Company Limited.
[27] However, Mr Faloon asserted in person before us that he is still a director – and possibly the sole director – and that he therefore does have the authority to institute the appeal.

Has the appeal in any event been properly brought?

[28] The form of the appeal in this instance is very unusual. Where there is an order placing a company in liquidation, any opposition by the company to such an order will normally consist of an application in the High Court that the order be stayed: see r 700K of the High Court Rules. If the Judge refuses to stay the liquidation, then that refusal may be appealed to this Court: see Kim v Wasan International Company Limited CA39/06 4 October 2006. The usual argument in such a case is that the debt is disputed and/or that the company is in fact solvent. The argument is then whether the Judge below erred in the exercise of his discretion to stay the liquidation.
[29] In this case however Central Equipment Company Limited did not apply under r 700K for the liquidation proceedings to be stayed; instead it sought a stay in contemplation of this appeal under r 12(3)(a) of the Court of Appeal (Civil) Rules 2005. We have been unable to locate any appeal to this Court which has been expressed as being against a liquidation order, rather than against a refusal to stay. The fact that the usual grounds for a stay (disputed debt, solvency, etc) have not been fully ventilated in the judgment below makes an appeal to this Court problematic.

Some problems with time

[30] We have noted the decision of Associate Judge Faire was on 2 October 2006. Mr Faloon lodged his Notice of Appeal on 12 October 2006. On 24 October 2006 the Court of Appeal registry indicated that the appeal would be treated as a general Notice of Appeal. The appeal was deemed by the Registry to have been filed on 3 November 2006. Under the time limits in r 43 of the Court of Appeal (Civil) Rules 2005 a hearing date should have been applied for by 3 May 2007. This was not done. The Registrar thereupon advised Mr Faloon that an application for extension of time would be required. The deadline for that application was 3 August 2007. Mr Faloon did not apply for such an extension.
[31] Given the utterly confused history of the proceedings to date it was almost inevitable that sooner rather than later Mr Faloon would find himself out of time. But in the particular circumstances we would not have let the time element deflect an otherwise properly constituted application for leave to appeal.

Resolution

[32] We have dealt with this matter at some length in an endeavour to restore some order to this proceeding. The question remains however as to what if any orders we should now properly make.
[33] First, we are satisfied that Mr Faloon in his personal capacity has no standing to make the present application for the company and hold accordingly.
[34] Secondly, it is unlikely that Mr Faloon has standing, or the authority, to mount the application on behalf of the company. There may however be an outside possibility that, through lack of appreciation on Mr Faloon’s part, everything which should be before the Court has not been put before it.
[35] We therefore adjourn the issue of whether special leave to appeal should be granted, and that issue alone, to a further miscellaneous motions list, to be allocated by the Registrar.
[36] We give the following directions in that respect:

• Mr Faloon will have 14 days from the date of this judgment to lodge with the Court of Appeal, and serve on the Commissioner, any affidavit evidence supporting the proposition that he is authorised to act for the company.
• In the event that such an affidavit is filed and served, the Commissioner will have 14 days to file and serve any affidavits in reply.
• In the absence of any relevant material, the Court will refuse leave and the application will be dismissed on the papers.
• The Registrar is to forward a copy of this judgment to the liquidators, who may enter an appearance if they wish to do so and be heard on the single issue we have deferred for future consideration.
• If Mr Faloon does file further relevant papers, the Registrar is to allocate a further fixture for the reserved point, in the miscellaneous motions list.
• Not less than seven days before that hearing, Mr Faloon is to file a short memorandum (which he may do in person or by counsel) containing such legal submissions as he wishes to make supporting the proposition that he is entitled to act for the company itself.
• For the assistance of the Registrar we indicate that there is no necessity for the determination of the reserved point to be listed before the same panel as have determined the points which have been disposed of by this judgment. The reserved point is a free-standing point.
  

Solicitors:
C J Faloon, 10B Taramea Rise, Pyes Pa, Tauranga
Crown Law Office, Wellington, for Respondent