Sisson v Chesterfields Preschools Limited (in liquidation) [2020] NZCA 689 (22 December 2020)

Last Updated: 23 December 2020

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

CA310/2017 [2020] NZCA 689

	BETWEEN	THERESE ANNE SISSON Appellant
	AND	CHESTERFIELDS PRESCHOOLS LIMITED (IN LIQUIDATION) Respondent

CA404/2017
	BETWEEN	THERESE ANNE SISSON Appellant
	AND	CHESTERFIELDS PRESCHOOLS LIMITED (IN LIQUIDATION) Respondent
CA682/2017
	BETWEEN	THERESE ANNE SISSON Appellant
	AND	CHESTERFIELDS PRESCHOOLS LIMITED (IN LIQUIDATION) First Respondent
	AND	COMMISSIONER OF INLAND REVENUE Second Respondent

Hearing:	5-6 October 2020
Court:	Miller, Venning and Katz JJ
Counsel:	Appellant in person P J Shamy, S Kinsler and C Russell for the Commissioner of Inland Revenue B M Russell and J C Wedlake for the liquidators of Chesterfields Preschools Ltd P Courtney and G Slevin for the Official Assignee
Judgment:	22 December 2020 at 2.00 pm

JUDGMENT OF THE COURT

1. The appeals in CA310/2017, CA404/2017 and CA682/2017 are dismissed.
2. Ms Sisson must pay the following costs to the respondents:

(a) In respect of CA310/2017, Ms Sisson must pay to CPL costs for a standard appeal on a band A basis, with certification for second counsel, plus usual disbursements. Ms Sisson must pay to the Official Assignee costs for a standard appeal on a band A basis plus usual disbursements.

(b) In respect of CA404/2017, Ms Sisson must pay to CPL costs for a standard appeal on a band A basis, with certification for second counsel, plus usual disbursements. Ms Sisson must pay to the Official Assignee costs for a standard appeal on a band A basis plus usual disbursements.

(c) In respect of CA682/2017, Ms Sisson must pay to CPL costs for a standard appeal on a band A basis, with certification for second counsel, plus usual disbursements.
____________________________________________________________________

REASONS OF THE COURT

(Given by Miller J)

• [1] This judgment determines several appeals relating to the bankruptcy of Anne Sisson. The appeals are CA310/2017 (refusal to halt adjudication in bankruptcy), CA404/2017 (adjudication in bankruptcy), and CA682/2017 (costs order). Ms Sisson was adjudicated on 23 June 2017.^[1]
• [2] The appeals are opposed by both the Official Assignee and Chesterfields Preschools Ltd (CPL), represented here by its liquidators.
• [3] This judgment is the third in a series disposing of 11 appeals relating to the affairs of CPL. The others ( - the liquidation judgment) and ( - the vesting orders judgment) deal respectively with the liquidation of CPL and orders vesting in CPL assets held by Ms Sisson qua trustee.
• [4] The three judgments should be read together. The liquidation judgment is the principal judgment.^[2] It contains the background narrative and deals with issues common to all appeals. In particular, it addresses Ms Sisson’s claim that the company ought not be wound up, and she ought to retain control of its assets, until such time as a misfeasance claim against officers of the Inland Revenue is tried. The liquidation judgment affirms what other decisions have already held, that the Commissioner of Inland Revenue is a creditor of CPL and that the company was correctly placed in liquidation. The vesting order judgment concludes that this Court has no jurisdiction to entertain Ms Sisson’s appeal but finds that in any event the appeal has no merit.
• [5] We begin by explaining how the debt on which Ms Sisson was adjudicated bankrupt came about.

The strikeout judgment [2016] NZHC 2367

• [6] On 5 October 2016 Osborne AJ delivered a judgment with the neutral citation [2016] NZHC 2367.^[3] In it the Associate Judge struck out, as between Ms Sisson and the Commissioner of Inland Revenue, a proceeding in which Ms Sisson sought to set aside an order placing CPL in liquidation.^[4] He also awarded the Commissioner costs.
• [7] The Associate Judge recorded that after placing CPL in liquidation he had recalled the liquidation judgment and joined Ms Sisson as a second defendant.^[5] He took that step so that she could pursue an appeal against liquidation. That appeal was subsequently deemed abandoned for failure to pay security for costs. Ms Sisson then commenced the setting aside proceeding, in which she alleged that the Commissioner made false representations to the Court in the liquidation proceeding and that there had been deceptive conduct by officers of the Inland Revenue over a long period.
• [8] The Associate Judge recorded that Ms Sisson had been joined as a party to the liquidation proceeding expressly for the purpose of enabling an appeal against liquidation.^[6] She did not have standing to pursue other matters on behalf of CPL. The new proceeding was accordingly struck out. The Commissioner was awarded costs on a 2B basis with an uplift of 50 per cent.^[7] The uplift was justified under r 14.6(3)(b)(ii) of the High Court Rules 2016 because the standing issue had been signalled at the outset and the proceeding lacked any merit.
• [9] Ms Sisson has brought appeal CA682/2017 from this judgment. She particularly focuses on the award of costs.

The stay judgment [2016] NZHC 2368

• [10] CPL was not a party to the strikeout application, but it was a respondent to Ms Sisson’s closely related attempt to stay the liquidation and vesting order proceedings. She sought the stay so that the (since struck out) proceeding could progress first, saying its outcome would be determinative.
• [11] The Associate Judge dismissed the stay application in a judgment also dated 5 October 2016 and with the neutral citation [2016] NZHC 2368.^[8] He recorded that it was common ground that the stay application could not succeed once the parallel proceeding had been struck out.^[9]
• [12] The Associate Judge awarded costs on a 2B basis with a 50 per cent uplift for lack of merit. He awarded costs to the Commissioner, the Assignee and CPL on that basis. It is not in dispute that the resulting sum payable to CPL is $7,853. Her failure to pay this sum was the trigger for a bankruptcy notice to be issued.
• [13] Ms Sisson has not brought an appeal against this judgment, although her adjudication rests on it.

Adjudication judgment [2017] NZHC 1410

• [14] Ms Sisson committed an act of bankruptcy when she did not comply with a bankruptcy notice issued by CPL, for the unpaid costs, in February 2017. CPL subsequently applied for her adjudication in bankruptcy and she cross-applied for a halt of the adjudication.^[10]
• [15] The defence advanced before the Associate Judge was that an appeal against the liquidation order was pending and it would be unfair to order her adjudication until that was resolved. Ms Sisson explained that underpinning the appeal against liquidation was maladministration on the part of the Commissioner.
• [16] The Associate Judge reasoned that a successful appeal against the liquidation order would not affect the validity of the costs orders or alter Ms Sisson’s indebtedness to CPL and the Commissioner pursuant to those orders.^[11] The proceeding that led to the costs award was misconceived and without hope of success.
• [17] Turning to the exercise of his discretion, the Associate Judge rejected Ms Sisson’s submission that she might achieve a better outcome for CPL if the liquidation was set aside, and she were not bankrupted, and she were instead able to have CPL defend a vesting order proceeding. He emphasised that the liquidators were acting as officers of the Court and the company’s status as a creditor in the bankruptcy proceeding flowed from a judgment debt, not any underlying tax indebtedness to the Commissioner.^[12] The judgment debt was not tainted by any allegation of maladministration. ^[13]
• [18] The Associate Judge accordingly refused to halt the adjudication and granted the company’s application for an order adjudicating Ms Sisson bankrupt.^[14] Appeals CA310/2017 and CA404/2017 are against the refusal to halt and adjudication orders in this decision, respectively.

The appeals

• [19] Ms Sisson filed submissions far exceeding in length the 25-page limit prescribed under the Court of Appeal (Civil) Rules 2005.^[15] They were largely repetitive of submissions made in the liquidation and vesting order appeals. She maintained that the liquidators acted in bad faith by enforcing a claim to a relatively modest sum in circumstances where an appeal was being brought against the liquidation. She argued that the liquidator and the Commissioner saw a tactical opportunity to argue that as a bankrupt Ms Sisson had no standing to continue to represent CPL in the appeal against liquidation. She emphasised that the costs order was made in proceedings against the Commissioner, who is the defendant in the misfeasance claim that she wishes to bring on behalf of the company. The Commissioner is the only creditor of CPL, so the liquidator was acting in the interests of the Commissioner in bringing the adjudication proceeding.
• [20] In support of these arguments, Ms Sisson rehearsed the misfeasance claim at length in her written submissions. We have addressed those arguments in the liquidation judgment.^[16] She also argued that she could set off damages claimed in the misfeasance proceeding against the costs award under s 254 of the Insolvency Act 2006.

Adjudication and stay appeals — Discussion

• [21] In the liquidation judgment we have dismissed the liquidation appeal. It follows that Ms Sisson’s challenge to the adjudication order must also fail. It rests on the premise that the company, whose claim it is, should not be wound up before the misfeasance claim is resolved. She does not otherwise challenge the quantum of the costs award or its underlying premise, which was that she lacked standing to bring the setting aside proceeding on behalf of the company in liquidation.
• [22] In this appeal Ms Sisson invoked the same setoff argument that we have rejected in the liquidation judgment. Section 254 of the Insolvency Act is in identical terms to s 310 of the Companies Act 1993 but there is one critical difference; r 5.61 of the High Court Rules does not exclude setoff, for this is a not a claim by the Commissioner for recovery of taxes.
• [23] We make three points about this argument. The first is that, as this Court recognised in Manchester Securities Ltd v Body Corporate 172108, the statutory netting off under s 310 of the Companies Act occurs after a company is put into liquidation.^[17] It does not preclude winding up even if it is possible that when accounts are taken the company will prove to be a net creditor rather than a net debtor. That possibility may be taken into account, unless the creditor is the Crown and the claim is for recovery of taxes, in the exercise of the Court’s discretion to wind up.
• [24] Second, there is an absence of the mutuality that s 254 of the Insolvency Act requires. A setoff for purposes of s 254 requires mutual dealings between the bankrupt and the party to whom the bankrupt is indebted. In this case, that other party is the liquidators, to whom the costs are owed. But the setoff which Ms Sisson relies upon is against the Commissioner. The liquidators are not defendants. It is CPL whose tax liability the Commissioner is said to have grossly overstated. The misfeasance claim is primarily that of CPL’s. Ms Sisson is named as a party in her capacity as a former partner in the Chesterfields Partnership, which suggests her claim is derivative. But even if she can be considered a party to that proceeding in her own right, with her own claim to damages, her claim lies against the Commissioner, not the liquidators of CPL.
• [25] Third, there is no substance in Ms Sisson’s attempt to portray the liquidators as usurpers and mere instruments of the Commissioner. In the liquidation judgment we have found that she cannot now dispute that CPL is indebted to the Commissioner for unpaid taxes and the company was properly placed in liquidation.^[18]
• [26] It was not in dispute before us that the appeal against the refusal to halt adjudication must fall away if the adjudication appeal were dismissed.

Costs appeal — Discussion

• [27] Turning to the costs appeal, CA682/2017, Mrs Courtney, for the Assignee, submitted that it appears Ms Sisson attempted to bring the appeal out of time and has not been granted an extension of time under s 29A of the Court of Appeal (Civil) Rules. In fact an extension of time was granted in a minute issued by Miller J on 6 November 2019.
• [28] The Assignee’s substantive position is that Ms Sisson has no standing to pursue the appeal. The costs award predated the order adjudicating her bankrupt on 23 June 2017 and she has no standing to bring proceedings or to appeal against any judgment that relates to a debt provable in her bankruptcy. That is plainly correct.^[19] The Assignee might appeal but does not consider there are any grounds for disputing the costs awards. It follows that the costs appeal must also be dismissed.

Disposition

• [29] The appeals in CA310/2017, CA404/2017 and CA682/2017 are accordingly dismissed.
• [30] We order Ms Sisson to pay the following costs to the respondents:

(a) In respect of CA310/2017, Ms Sisson must pay to CPL costs for a standard appeal on a band A basis, with certification for second counsel, plus usual disbursements. Ms Sisson must pay to the Official Assignee costs for a standard appeal on a band A basis plus usual disbursements.

(b) In respect of CA404/2017, Ms Sisson must pay to CPL costs for a standard appeal on a band A basis, with certification for second counsel, plus usual disbursements. Ms Sisson must pay to the Official Assignee costs for a standard appeal on a band A basis plus usual disbursements.

(c) In respect of CA682/2017, Ms Sisson must pay to CPL costs for a standard appeal on a band A basis, with certification for second counsel, plus usual disbursements.





Solicitors:
Crown Law, Wellington for the Official Assignee
Lane Neave, Christchurch for the liquidators of Chesterfields Preschools Ltd

---

^[1] Chesterfields Preschools Ltd (in liq) v Sisson [2017] NZHC 1410 [Adjudication judgment] at [53] and [55].

^[2] [Placeholder for Liquidation Appeal decision].

^[3] Sisson v Commissioner of Inland Revenue [2016] NZHC 2367 [Strikeout judgment].

^[4] Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2015] NZHC 2440, (2015) 27 NZTC 22-029.

^[5] Strikeout judgment, above n 3, at [7]. See Commissioner of Inland Revenue v Chesterfields Preschools Ltd (in liq) [2015] NZHC 2667.

^[6] At [13].

^[7] At [23]–[24].

^[8] Chesterfields Preschools Ltd v Sisson [2016] NZHC 2368.

^[9] At [8].

^[10] Insolvency Act 2006, ss 13 and 38.

^[11] Adjudication judgment, above n 1, at [33].

^[12] At [47].

^[13] At [48].

^[14] At [53]–[55].

^[15] Rule 40E(3)(a).

^[16] Liquidation Appeal, above n 2, at [29]–[53].

^[17] Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408 at [36].

^[18] Liquidation Appeal, above n 2, at [28] and [102].

^[19] Re Wilson HC Christchurch B348/89, 5 December 1989; and Zhang v Westpac New Zealand Ltd [2019] NZHC 2797 at [5].