Faloon v Commissioner of Inland Revenue [2013] NZHC 2142 (7 August 2013)

Last Updated: 30 August 2013

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-470-000922 [2013] NZHC 2142

BETWEEN CLARENCE JOHN FALOON Applicant

AND THE COMMISSIONER OF INLAND REVENUE

Respondent

Judgment: 6 August 2013

Appearances: Applicant in person (by teleconference)

D K Lemmon and S J Leslie for Respondent

(by teleconference) Reasons: 7 August 2013

_{REASONS FOR JUDGMENT OF KATZ J}

Solicitors:

D K Lemmon, Crown Law, Wellington

Copy to:

C J Faloon, Tauranga

FALOON v THE COMMISSIONER OF INLAND REVENUE [2013] NZHC 2142 [7 August 2013]

Introduction

[1] Mr Faloon has three stay applications before the Court. All three relate to a costs judgment of Associate Judge Christiansen dated 4 June 2013 (“Costs Judgment”).

[2] The first stay application was dated 7 June 2013 and sought a stay of the Costs Judgment pending the hearing of an application for review of that judgment. In a judgment delivered on 9 July 2013, Woodhouse J ordered that the first stay application would be deemed to have been dismissed unless the total sum of costs fixed by Associate Judge Christiansen ($19,106.98) was paid into Court on or before

3.00pm on Friday 19 July 2013.

[3] Subsequently, in a minute dated 17 July 2013, Woolford J extended the time for payment until 3.00 pm on 9 August 2013. This was in large part due to the fact that there were at that stage two other stay applications before the Court also relating to the Costs Judgment. All three stay applications were described as “somewhat interdependent”. Woolford J accordingly directed that a judicial teleconference be scheduled prior to 9 August 2013 “in order for a Judge to make a formal determination on the two extant applications for stay filed by Mr Faloon”. That teleconference took place before me yesterday.

[4] At the conclusion of the teleconference I ordered that:

(a) The application to review the Costs Judgment dated 7 June 2013 is to be adjourned pending determination of the two appeals Mr Faloon has filed dated 26 June 2013 (in respect of the Costs Judgment) and 16

July 2013 (in respect of the judgment of Woodhouse J).

(b) The stay applications relating to those two appeals (dated 26 June

2013 and 12 July 2013 respectively) are determined on the same basis as the first stay application, namely that they will be deemed to have been dismissed unless the total sum fixed by Associate Judge Christiansen ($19,106.98) is paid into Court on or before 3.00 pm on

9 August 2013. If that sum is paid into Court by that time then

enforcement of the Costs Judgment is stayed pending the outcome of the two appeals.

[5] I also stated that I did not propose to make any immediate costs orders (the Commissioner proposes to seek indemnity costs) but that the parties would be given the opportunity to file memoranda on costs. I direct that any memorandum on behalf of the Commissioner is to be filed within 20 working days of these reasons, with any response by Mr Faloon to be filed within 10 days of filing and service of the Commissioner’s memorandum. Costs issues in relation to the second and third stay applications will then be determined on the papers.

[6] I advised the parties that written reasons would follow. They are set out below.

Procedural background

[7] The procedural background to these proceedings and the current stay applications is complex. It is perhaps best explained with reference to a chronology of the key procedural events since the proceedings were filed in 2010. Those events are as follows:

15 October 2010 Mr Faloon files a statement of claim in relation to his tax affairs.

12 November 2010 Commissioner applies to strike out the statement of claim and seeks indemnity costs.

8 December 2010 Associate Judge Doogue sets down the strike out application for hearing and makes timetable directions.

13 December 2010 Mr Faloon applies for review of Associate Judge

Doogue’s decision.

16 February 2011 Mr Faloon applies for further orders.

7 March 2011 Brewer J declines the applications made on

13 December and 16 February and awards indemnity costs to the Commissioner.

9 March 2011 Mr Faloon files an interlocutory application for orders

to vary or rescind Brewer J’s 7 March judgment.

15 March 2011 Brewer J declines to vary his earlier judgment.

22 March 2011 Mr Faloon files a further interlocutory application for orders to vary or rescind Brewer J’s 15 March 2011 decision.

23 March 2011 Brewer J declines to vary his 15 March judgment.

5 July 2011 Brewer J declines to vary the award of indemnity costs in his judgment of 7 March.

8 August 2011 Mr Faloon files an amended statement of claim.

20 October 2011 Mr Faloon files a new statement of claim seeking an order of prohibition such that the court could not hear the strike out application until a statement of defence had been filed.

8 November 2011 Associate Judge Christiansen grants the strike out application and reserves costs, indicating that indemnity costs are appropriate.

10 November 2011 Mr Faloon seeks review of the strike out decision.

29 February 2012 Peters J dismisses the review application and orders costs on a 2B basis as there is insufficient time to consider indemnity costs at the hearing.

28 May 2012 Peters J strikes out the statement of claim dated

20 October 2011.

14 May 2013 The Commissioner seeks 2B costs in relation to the strike out application, on the basis that the review application proceeded by way of rehearing the strike out application, and the Commissioner should be entitled to the same costs.

4 June 2013 Associate Judge Christiansen awards costs on a 2B

basis in respect of the strike out application of

$9,751.00 and disbursements of $1,048.48 and in relation to the review application costs of $7,761.00 and disbursements of $546.50. The total is

$19,106.98.

7 June 2013 Mr Faloon seeks review of the costs judgment of

4 June and applies to stay the costs judgment pending review (first stay application).

21 June 2013 The Commissioner opposes the review application and submits that the Costs Judgment must be appealed to the Court of Appeal.

26 June 2013 Mr Faloon files a notice of appeal in the Court of Appeal in respect of the Costs Judgment and applies for stay of the Costs Judgment pending that appeal (second stay application).

9 July 2013 Woodhouse J delivers judgment determining, in Mr Faloon’s favour, that the High Court has jurisdiction to review the Costs Judgment. The first stay application is determined on the basis that it will be dismissed unless Mr Faloon pays the sum of

$19,106.98 ordered by the costs judgment into Court by 19 July.

12 July 2013 Mr Faloon seeks a stay of Woodhouse J’s judgment pending appeal to the Court of Appeal (third stay application).

16 July 2013 Mr Faloon files a notice of appeal in the Court in

respect of Woodhouse J’s judgment.

17 July 2013 Woolford J extends the time period for payment of costs into Court until 9 August.

[8] As is apparent from this chronology, all three stay applications relate to the

Costs Judgment:

(a) On 7 June 2013, Mr Faloon sought a stay of the Costs Judgment pending review by the High Court. This is the first stay application. It was dealt with by Woodhouse J in his judgment of 9 July 2013. Woodhouse J ordered that the stay would be granted if Mr Faloon paid the amount the subject of the Costs Judgment ($19,106.98) into Court by 19 July 2013 and dismissed if he did not. Woolford J subsequently extended the date for payment until 9 August 2013.

(b) On 26 June 2013 Mr Faloon sought a stay of the Costs Judgment (the second stay application) pending his separate appeal of the Costs Judgment to the Court of Appeal. That appeal was presumably filed out of an abundance of caution, given that the Commissioner was at that time seeking to strike out Mr Faloon’s review application on jurisdictional grounds. However, in his 9 July 2013 judgment, Woodhouse J found in Mr Faloon’s favour on the jurisdiction issue.

He found that this Court did have jurisdiction to review the Costs

Judgment.

(c) On 12 July 2013, Mr Faloon sought a stay of Woodhouse J’s 9 July judgment, in so far as it related to the first stay application, pending an appeal to the Court of Appeal (the third stay application).

[9] The current position, therefore, is that there is both an extant appeal and an application for review in relation the Costs Judgment. During the teleconference I indicated to Mr Faloon that it was not appropriate for those two processes to run in parallel. Mr Faloon advised that his primary focus was pursuit of the appeals. I accordingly adjourned the review application pending determination of the appeals. The future course of the review application is obviously likely to depend on whether the Court of Appeal determines that it has jurisdiction in relation to one or both of the appeals.

The first stay application – Woodhouse J’s decision

[10] When considering the first stay application, Woodhouse J addressed whether Mr Faloon’s possible rights on a successful application for review would be rendered nugatory if there were no stay. He concluded they would not. He noted that if Mr Faloon were to succeed in his review application then the Commissioner would be required to repay any costs recovered from Mr Faloon, either in whole or in part. However there is no doubt as to the Commissioner’s ability to do so.

[11] Woodhouse J also made a provisional assessment of the prospects of success of the review application. He concluded that Mr Faloon had no realistic prospects of succeeding on his application for review. Further, in relation to that portion of the costs (almost half) relating to the 29 February 2013 Judgment of Peters J, his Honour noted that the Associate Judge had merely engaged in a fairly routine exercise of quantifying the 2B costs awarded by Peters J. Her Honour’s decision to award costs on a 2B basis has not been appealed. There is therefore very limited scope to challenge this aspect of the Associate Judge’s decision at all.

[12] Taking these various matters into account Woodhouse J concluded that if Mr Faloon was to be granted a stay the costs that have been awarded should be paid into Court in the interim, pending the outcome of the review application.

[13] The matter subsequently came before Woolford J on 17 July 2013. As I have noted at [3] above, Woolford J extended the time for paying the costs into Court until

3:00 pm on Friday, 9 August 2013, to enable the second and third stay applications to be determined.

The second and third stay applications

[14] Mr Faloon’s primary submission in support of the second and third stay applications was that the Commissioner’s notices of opposition had been filed outside the 10 working days period provided for in the High Court Rules. Accordingly the stay applications should be granted.

[15] Counsel for the Commissioner submitted that the Commissioner should not be put to the time and expense of responding to further stay applications in relation to an issue which has already been determined. Accordingly, the Commissioner’s initial view was that there was no need to formally oppose the second and third stay applications. They simply represented further attempts to delay execution of the Costs Judgment. However, to the extent that formal opposition might be necessary, the Commissioner filed notices of opposition prior to the teleconference (albeit outside the 10 day period provided for in the High Court Rules).

[16] As I indicated to Mr Faloon during the teleconference, in my view the appropriate course is to deal with the stay applications on their merits. Mr Faloon is not prejudiced by the notices of opposition being filed outside the 10 day period. The issues are well understood and have been previously argued before Woodhouse J.

[17] The Commissioner, in light of Woodhouse J’s judgment, now accepts that the Costs Judgment should be reviewed rather than appealed. Mr Faloon, however, now wishes to proceed down the appeal rather than review route (contrary to the position

he took before Woodhouse J). In such circumstances the Commissioner queries the motivation of Mr Faloon. In particular, counsel for the Commissioner submitted that Mr Faloon’s pursuit of the appeal rather than the review is motivated by a wish to avoid having to make the payment into Court directed by Woodhouse J in order to secure a stay.

[18] I think it is implicit in the Commissioner’s submissions that, from the Commissioner’s perspective, Mr Faloon’s conduct borders on abuse of process and is a collateral attack on the judgment of Woodhouse J (although those particular phrases were not used). Related to this, the Commissioner submitted that the public interest does not favour the granting of a stay. She submitted that:

Meritless litigation by Mr Faloon has already consumed significant public resources, both in the courts, and in the costs to the Commissioner in opposing the litigation, and these stay applications represent a further attempt to delay execution of a costs order awarded to the Commissioner to defray her costs in defending the litigation. There are no novel or important questions and issues raised in any of the appeals.

[19] The Commissioner also opposed the second and third stay applications on conventional grounds. In essence, the same arguments apply, on both sides, as were advanced before Woodhouse J.

[20] In relation to the second stay application, in my view it is on all fours with the first stay application. The only difference is that it seeks a stay pending appeal rather than a stay pending review. The arguments relevant to such a stay are, however, the same as those advanced before Woodhouse J. The key issue is whether Mr Faloon’s right of appeal to the Court of Appeal in respect of the Costs Judgment will be rendered nugatory if a stay is not granted. In my view Mr Faloon’s rights of appeal will not be rendered nugatory, essentially for the reasons outlined by Woodhouse J. If the appeal of the Costs Judgment succeeds the Commissioner will have to refund any costs to Mr Faloon. The Commissioner is well able to do so. Accordingly orders that mirror those made by Woodhouse J are appropriate.

[21] The third stay application is somewhat different. Mr Faloon has appealed Woodhouse J’s decision to order him to pay the costs awarded into Court in order to secure a stay pending the review of the Costs Judgment. However Mr Faloon no

longer wishes to progress the review of the Costs Judgment. He has elected to pursue an appeal instead. On that basis, both the first and third stay applications are arguably moot. They relate to the review application (or decisions in relation to it) not the appeal. However, Mr Faloon has elected to pursue an appeal rather than a review. Nevertheless the review application remains on foot, albeit adjourned pending the outcome of the appeal. It is therefore appropriate to determine the third stay application.

[22] The overall procedural complexity associated with these proceedings is, to say the least, unfortunate. To have three stay applications arising out of one costs judgment adds further to the procedural complexity. Against this background it is important that the three stay applications are dealt with consistently, if at all possible. As Woolford J has previously observed, they are to an extent interdependent. No principled basis was advanced for treating the second or third stay application differently to the first stay application. I accordingly made orders in relation to the second and third stay applications that effectively mirror those previously made by

_{Woodhouse J (as extended by Woolford J). Those orders are set out at [4](b) above.}

Katz J