Smith v Commissioner of Inland Revenue [2019] NZCA 521 (29 October 2019)

Last Updated: 6 November 2019

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA774/2018 [2019] NZCA 521

	BETWEEN	PAUL KENNETH SMITH Applicant
	AND	COMMISSIONER OF INLAND REVENUE Respondent

Hearing:	21 October 2019
Court:	Brown, Gilbert and Goddard JJ
Counsel:	Applicant in person H W Ebersohn and O J G Upperton for Respondent
Judgment:	29 October 2019 at 3.00 pm

JUDGMENT OF THE COURT

1. The application for an extension of time to appeal is declined.
2. No order as to costs.

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REASONS OF THE COURT

(Given by Brown J)

Introduction

[1] On 1 March 2012 Associate Judge Gendall made an order adjudicating Mr Smith bankrupt.^[1] He wishes to appeal from that decision. However, as several years have passed, it is necessary for Mr Smith to make the present application for an extension of time under r 29A of the Court of Appeal (Civil) Rules 2005 to file a notice of appeal. The Commissioner of Inland Revenue opposes the application.

Relevant background

[2] Mr Smith’s bankruptcy has its origins in an investigation by the Commissioner into his liabilities for income tax and goods and services tax (GST) concerning the period during which he operated a taxi business in Foxton. The Commissioner assessed Mr Smith to be liable for core tax, penalties and interest in the total sum of $71,145.99. Mr Smith did not bring a challenge to that assessment under the challenge provisions in the Tax Administration Act 1994 (TAA).

The District Court debt proceeding: CIV-2009-031-151

[3] The Commissioner filed a statement of claim in the District Court at Levin in early August 2009 seeking judgment for the amount of the unchallenged tax liability. Mr Smith filed a document on 3 September 2009 described as a notice of defence but which did not meet the requirements of a statement of defence. No filing fee was paid. The Deputy Registrar advised the applicant of the deficiencies and required him to file a statement of defence by 27 October 2009. Mr Smith failed to do so. Judgment by default was entered in the sum of $71,325.99 being the amount of the claim plus court fees and costs.

The District Court criminal proceeding: CRI-2009-031-1664

[4] Criminal charges were also brought in connection with Mr Smith’s tax affairs. Following a trial in the District Court at Palmerston North on 31 October 2011 he was found guilty on 17 charges of filing false GST and income tax returns.
[5] However those convictions were overturned in this Court on 29 May 2013. A retrial was ordered.^[2] But the Crown elected not to proceed with a retrial and Mr Smith was discharged on 21 August 2013.

The High Court bankruptcy proceeding: CIV-2011-454-530

[6] The Commissioner served a bankruptcy notice on Mr Smith requiring him to pay $71,355.99 being the amount of the judgment plus $30 for the certificate of judgment. Mr Smith having failed to pay, on 17 November 2011 the Commissioner filed an application in the High Court at Palmerston North for an order adjudicating Mr Smith bankrupt. Mr Smith did not file a statement of defence to the application.

The High Court judgment

[7] The proceeding was heard in the High Court on 1 March 2012. Mr Smith did not attend. However he sent a letter to the Court containing what the Judge described as a number of “extreme allegations” and “serious claims”.^[3]
[8] The Judge was made aware of the then status of the criminal proceeding. The judgment recorded:

[14] As to this, I record that Ms Carpenter appeared as counsel for the judgment creditor before me at the hearing today. She confirmed that the judgment debtor in earlier criminal proceedings has been convicted for knowingly filing false income tax and GST returns and was sentenced on these matters I understand on 31 October 2011.

[15] The judgment debtor in his 29 February [2012] letter to the Court contended that this case cannot proceed “due to it being in the Court of Appeal”.

[16] As I understand the position from Ms Carpenter, the appeal before the Court of Appeal by the judgment debtor is against his sentencing on the criminal conviction which occurred on 31 October 2011. He has not appealed nor made any application to set-aside the original judgment of the District Court against him in favour of the judgment creditor on which the present proceeding relies.

[17] As I see the position there is simply nothing before the Court by way of a possible defence or opposition to the present application.

[18] The judgment debtor has clearly committed an act of bankruptcy which remains unremedied. An order for adjudication is appropriate here.

Mr Smith’s application for an extension of time

[9] Mr Smith’s application for an extension of time, which annexed several documents, foreshadowed three proposed grounds of appeal, namely:

• the respondent’s confirmation that documents filed in the High Court were false;
• his convictions were overturned by this Court and he was discharged on all charges;
• the Official Assignee supports Mr Smith’s application for an order for annulment of his bankruptcy.

[10] The reasons advanced for the delay of more than six years were:

• Mr Smith has had two knee replacements;
• his mother passed away due to a home invasion;
• receipt of a letter from the respondent responding to Mr Smith’s request for information.

[11] Mr Smith’s written submissions filed in support of his application claimed that Inland Revenue had committed perjury and other criminal offences in the District Court and the High Court. It was also submitted that no evidence has been filed or supplied to him proving he owes any money. In his remarks at the hearing he placed emphasis on the fact that his criminal convictions have been overturned. He maintained that as a consequence he could have no civil liability for unpaid income tax and GST. He sought to invoke a number of provisions in the New Zealand Bill of Rights Act 1990 in support of that contention.
[12] In the course of his presentation he handed up a number of documents including a notice by the Crown Solicitor dated 8 March 2010 under s 168(1) of the Summary Proceedings Act 1957 relating to the filing of a written statement. Another document to which Mr Smith referred among the several documents annexed to his application was an email from the office of the Official Assignee dated 28 November 2017 following Mr Smith’s successful appeal against his conviction. We were invited to infer that the Official Assignee supports Mr Smith’s current application.

The Commissioner’s opposition

[13] The Commissioner opposed the application on several grounds including:

• (a) The application was filed on 10 December 2018, 6 years and 8 months out of time. It was not served on the respondent who only received it from the Court of Appeal on 12 July 2019, 7 years and 3 months out of time.
• (b) Mr Smith has not provided affidavit evidence substantiating the reasons for his delay in seeking to appeal from the judgment. The reasons given are insufficient to explain the duration of the delay. While it appears that Mr Smith had knee surgery in 2012 and that his mother passed away in mid-2017, there is no explanation as to why he did not seek to appeal the decision between 2013 and mid-2017.
• (c) The delay in seeking to appeal has caused prejudice to the respondent on account of staff changes since 2012 and the difficulty of obtaining relevant documentation.
• (d) The merits of the prospective appeal are low.
• (e) The appeal raises no issues of public importance.

[14] So far as the merits of the proposed appeal are concerned, Mr Upperton noted that the Insolvency Act 2006 provides for when a bankrupt may be discharged or apply for discharge of bankruptcy. If Mr Smith is given leave to appeal, then the respondent intends to argue that the statutory process (and not an appeal of the bankruptcy decision out of time) provides the appropriate remedy for Mr Smith.

Discussion

[15] It is convenient first to address the first document which Mr Smith provided to the Court at the hearing. He can be forgiven for being confused by this document. It was erroneously prepared by the Crown Solicitor. While it is a document intended to be filed in the criminal proceeding in accordance with s 168 of the Summary Proceedings Act, the heading of the document on the front sheet erroneously referred to the District Court debt proceeding.
[16] We accept Mr Upperton’s submission that the manifest error in the heading of the document does not provide any basis for the suggestion that there has been fraud or conspiracy on the part of the Commissioner. While the document has understandably caused confusion for Mr Smith, it does not assist him in relation to the present application.
[17] It seems clear that Mr Smith has proceeded in the erroneous belief that the fact that he was discharged on the various charges against him in the criminal proceeding in itself provides a defence to the Commissioner’s claim in the District Court debt proceeding. However Mr Upperton is correct in his submission that the outcome of the criminal trial is irrelevant to the decision which Mr Smith now seeks to appeal, namely the decision of the High Court adjudicating him bankrupt on the basis of the judgment entered against him in the District Court debt proceeding.
[18] Mr Smith’s attempt to appeal from the High Court judgment is doomed to fail because that judgment is based on an act of bankruptcy, namely the non-compliance with a bankruptcy notice. Putting to one side for a moment the fact that this is a tax debt, if a debtor wishes to challenge bankruptcy proceedings it is necessary for the debtor to apply to set aside the debt judgment on which the bankruptcy notice is founded.
[19] Mr Smith appears to understand this because he has previously attempted to file in this Court a notice of appeal against the default judgment. The Registrar’s refusal to accept that appeal was upheld in a judgment of Williams J dated 10 July 2019.^[4] The point was made there that the relevant appeal pathway against a default judgment entered by the Deputy Registrar is to the District Court itself in the first instance.
[20] In response to a minute of 2 August 2019 in the present matter Mr Smith indicated that he intended to pursue an application in the District Court to set aside the judgment. However in a memorandum of 7 August 2019 Mr Upperton for the Commissioner made the point that as an undischarged bankrupt Mr Smith has no standing to challenge the District Court judgment, the right of challenge being vested in the Official Assignee.
[21] Mr Upperton made the further point that even the Official Assignee could not successfully apply to set aside the judgment debt for the reason that the debt in question is for tax. Under s 109 of the TAA the Commissioner’s assessment is deemed to be correct unless the correct challenge procedures were followed. The Commissioner’s assessment not having been challenged, it cannot be challenged now and the assessment is deemed to be correct.
[22] The latter point is an insuperable obstacle for Mr Smith. Even if the Official Assignee was to agree to make an application in the District Court to set aside the default judgment (and there has been no communication of which we are aware subsequent to the 28 November 2017 email that would indicate that is likely) the fact that the default judgment is for a tax debt which was not the subject of a challenge proceeding in the manner provided in the TAA would render the application futile.^[5]
[23] Regrettably for Mr Smith it follows that there would be no point in our granting an extension of time for him to appeal against the High Court judgment adjudicating him bankrupt. The avenues open to him are those noted in the Commissioner’s opposition.^[6]

Result

[24] The application for an extension of time to appeal is declined.
[25] We understood Mr Upperton not to press the claim for costs on the application. Accordingly there is no order for costs.

Solicitors:
Crown Law Office, Wellington for Respondent

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^[1] Commissioner of Inland Revenue v Smith [2012] NZHC 756.

^[2] Smith v R [2013] NZCA 184.

^[3] Commissioner of Inland Revenue v Smith, above n 1, at [10] and [12].

^[4] Smith v Commissioner of Inland Revenue [2019] NZCA 301.

^[5] Nor is there any suggestion that Mr Smith followed the objection procedures mentioned in s 109 of the Tax Administration Act 1994.

^[6] At [14] above.