Engineeronline Limited v Commissioner of Inland Revenue [2013] NZHC 2879 (31 October 2013)

Last Updated: 14 November 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3843 [2013] NZHC 2879

UNDER the Goods and Services Tax Act 1985 and the Tax Administration Act 1994

IN THE MATTER OF an appeal from a decision of the Taxation

Review Authority dated 24 July 2013

BETWEEN ENGINEERONLINE LIMITED Appellant

AND COMMISSIONER OF INLAND REVENUE

Respondent

Hearing: 31 October 2013

Appearances: M J Elmes on behalf of the Apellant

D Lemmon and S Chapman for the Respondent

Judgment: 31 October 2013

_{(ORAL) JUDGMENT OF WOODHOUSE J}

Solicitors / Parties: Mr M J Elmes

Mr D Lemmon / Mr S Chapman, Crown Law, Wellington

ENGINEERONLINE LIMITED v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2879 [31 October

2013]

[1] The appellant company has appealed against a decision of the Taxation Review Authority on a question relating to the company’s liability for GST. An assessment by the Commissioner of GST liability in a sum of approximately $67,000 was upheld by the Authority.

[2] The hearing today has been to determine two preliminary applications:

(a) An application for leave for Mr M J Elmes to represent the company.

Mr Elmes is a retired mechanical engineer and, as he says in his

affidavit, “sole operator/director” of the appellant.

(b) The appellant also applies to dispense with security for costs on the appeal.

[3] The only formal evidence put before the Court by Mr Elmes in support of the applications is contained in a brief affidavit, which also effectively served as the appellant’s written submissions (I also heard oral submissions from Mr Elmes). It is a short affidavit and it will assist if I set out the essential parts of it. Following a brief description of the background to the appeal Mr Elmes says:

4) Having argued the matter for two days before the Taxation Review Authority and been personally involved with the project from the sculptor’s conceptual stage through to when the partially assembled sculpture, actually left the assembler’s premises in a special container by truck for the New Zealand port of departure, I am demonstrably more familiar with the events that occurred than any other person could reasonably be, and having done research I believe I have sufficient understanding of the significance of the various laws issues I intend to raise and with guidance, the procedures required to do so.

5) As regards the matter of whether security for costs should be paid, there is no tax owing by EngineerOnLine Ltd and both The Commissioner and Judge Sinclair have acknowledged, on record, that neither was there any attempt at defraud. The Taxation Review authority gave no direction that any such costs should apply in this event.

6) Having sought indicative costs from a qualified barrister, EngineerOnLine Ltd being a modest company, cannot incur any such further expense in this matter.

[4] The Commissioner opposes both applications. On the question of legal representation reference was made to the leading authorities, including Mannix¹ and Commissioner of Inland Revenue v Chesterfield Preschools Ltd.² It is submitted, in essence, that Mr Elmes has not put forward any evidence or argument justifying exercise by the Court of the circumscribed discretion to permit Mr Elmes, who is not a lawyer, to represent the company. On the question of security for costs it is

submitted, again, that no grounds have been made out and that financial difficulty does not of itself justify dispensing with security.

[5] In the course of the oral submissions Mr Elmes referred to financial statements and bank accounts for the company which he had brought to Court. These had not been put in evidence for the purpose of this application in the manner they should have been put in evidence and which would in turn have given the respondent proper opportunity to consider the information and, if necessary, respond to it. Mr Lemmon, for the respondent, nevertheless did not oppose my looking at the information. That was a responsible approach in the circumstances. On the face of it the financial information, being the annual financial statements for the year ended

31 March 2012, together with bank statements from that date down to the present time, indicate that the company’s financial resources are very limited. In referring to this information I do take account of Mr Lemmon’s application for a short adjournment to give the respondent proper opportunity to consider the information. Given the nature of the present applications I thought it preferable not to adjourn the matter, but on the basis that the information provided in this way needs to be weighed in light of the fact that the respondent has had no opportunity to assess it and respond with other evidence if appropriate.

[6] I also gave Mr Elmes an opportunity informally to provide further evidence relating to an estimate of costs he has got from a senior tax barrister for an opinion as to the prospects on appeal and for an appeal. There is a quote “of no more than”

_{$4,500 plus GST for an opinion on the prospects of appeal. There is a broad}

¹ _{Re G J Mannix Ltd [1984] 1 NZLR 309 (CA).}

2. Commissioner of Inland Revenue v Chesterfield Preschools Ltd [2013] NZCA 53, [2013] NZCCLR 10.

indicative estimate of $15,000 to $20,000 plus GST for an appeal with a caution that a better estimate could be provided once an opinion had been provided.

Representation

[7] The principles relating to representation of companies by persons other than lawyers are well established. The reasons for the general rule are fully explained by the Court of Appeal in Mannix, including the discussions in that case of leading authorities from other jurisdictions. The essential rule or principle was recently confirmed by the Court of Appeal in Commissioner of Inland Revenue v Chesterfield Preschools Ltd. It is unnecessary to summarise those principles. It is also unnecessary to summarise what the Court of Appeal has said in those cases, and in other cases, as to possible circumstances in which the Court’s discretion might be exercised to permit a person other than a lawyer to represent a company. The essence in relation to discretion is recorded in Commissioner of Inland Revenue v Chesterfield Preschools Ltd: “The Mannix rule may be departed from only in

exceptional circumstances.” ³

[8] I am not persuaded that there are exceptional circumstances justifying departure from the rule. I am in fact positively satisfied that this is a case where the appellant company should in the company’s interests, quite apart from the interests of the Court and the respondent, be represented by a lawyer with experience both in matters of tax law and in the practice and procedure of the Court. I do not intend to be critical of Mr Elmes in any way in saying that his submissions to me have given emphasis to the desirability of having such a lawyer represent the company. Some of the reasons why this is necessary have already been indirectly referred to, in relation to tendering of evidence. Another example is the careful oral submissions that Mr Elmes presented. With all due respect to Mr Elmes, and as I indicated to him in the course of his submissions, the matters he addressed ranged well beyond matters relevant to the issues I have to decide. I repeat that I am not referring to these matters in order to be critical, but to illustrate the importance of the rule relating to representation by lawyers. And, as Mr Elmes himself acknowledged in his affidavit,

_{on matters of procedure he would require guidance. As I indicated to him this is not}

³ Commissioner of Inland Revenue v Chesterfield Preschools Ltd, above n 2, at [34].

something that the Court can provide, except in a very general way. It may be accepted that Mr Elmes, as he has said, has detailed knowledge of the factual background to the tax issues, but that is not the knowledge or experience of importance in this case in relation to the rule I am considering.

[9] On the application to permit Mr Elmes to represent the company the onus was on him, and on the appellant, to persuade the Court that the limited discretion should be exercised in favour of Mr Elmes. For the various reasons outlined I am not persuaded that the discretion should be exercised to permit Mr Elmes to represent the company. As I have indicated I am persuaded in fact to the contrary effect – that a lawyer should represent the company on this appeal.

Security for costs

[10] The primary ground for seeking waiver of security for costs is impecuniosity. There is the evidence that I have earlier referred to and which, for reasons I have also discussed, I have accepted with appropriate caution given the fact that the respondent has not had an opportunity to reply. In describing the evidence in that way I am not intending to indicate that the Court considers that it has in any way been presented with inaccurate information.

[11] The Court of Appeal in RIG v Chief Executive of the Ministry of Social Development, after referring to the normal rule that security “must” be provided (which is the rule in the High Court as well as the Court of Appeal), referred to the general need to establish “exceptional circumstances” before there is waiver. The Court said:⁴ “Impecuniosity alone is not usually sufficient to justify a waiver ...”

[12] I discussed with Mr Elmes the general rules relating to security for costs and the purpose of requiring security. I discussed with him, and to a limited extent with Mr Lemmon, the possibility of waiving, or at least reducing, security for costs in the particular combination of circumstances in this case, in the expectation that if the company is not required to provide the security – which on scale would be just under

_{$2,000 – that is money which could constructively be applied to obtain an}

⁴ RIG v Chief Executive of the Ministry of Social Development [2010] NZCA 370, (2010) 20

PRNZ 703, at [3] and [4].

independent legal opinion from a qualified tax lawyer as to the merit of an appeal, or towards the costs of a lawyer to represent the company.

[13] I also asked Mr Elmes whether he personally would undertake to the Court to meet an order for costs made against the appellant in the event that, at the conclusion of the appeal, the appellant is ordered to pay the respondent’s costs. I said to Mr Elmes that I did not want him to give such an undertaking unless he had had an opportunity to consider the implications of it. Consistently with the way in which Mr Elmes has approached this matter in general, in respect of his own acceptance of responsibility for obligations of the company, Mr Elmes did say that he was willing to provide such an undertaking. To perhaps expand a little on that somewhat cryptic observation, I note that the company has in fact paid the GST assessed liability in full and I infer that that has occurred because of the sense of responsibility Mr Elmes has for the obligations of the company.

[14] The circumstances here, with the combined applications to permit Mr Elmes to represent the company and the application to waive security for costs, and the financial burden imposed on the company to engage a competent lawyer, together with Mr Elmes’ personal undertaking to the Court, persuade me that this is a case where the Court’s discretion to waive security should be exercised.

[15] Accordingly, I make an order that security for costs from the appellant is not required. This order is made upon Mr Elmes’ undertaking referred to above.

[16] The appellant’s application to be represented on the appeal by Mr Elmes is dismissed. In dismissing that application it necessarily means that the company must be represented by a lawyer in accordance with the general rules.

Costs

[17] In the particular circumstances of this case Mr Lemmon accepted that costs are appropriately reserved. Accordingly, costs of and incidental to these two applications are reserved. I nevertheless observe for the record, without expressing any concluded view, that this is a case where the respondent might in the normal course have been entitled to costs. This is because the respondent succeeded on the

question of legal representation of the company and the waiver of security for costs arose out of what amounts to a considerable dispensation to the appellant company as a consequence of matters that only arose in the course of the hearing.

Directions for disposal of the appeal

[18] On or before 20 December 2013 the appellant is to file and serve a memorandum advising whether the appeal is proceeding and, if the appeal is proceeding:

(a) The appellant must at the same time file and serve points on appeal.

(b) In the memorandum the appellant is to set out timetable proposals leading up to the hearing of the appeal.

[19] The respondent is to file and serve a memorandum in reply to the appellant’s

memorandum on or before Friday, 31 January 2014.

[20] Following filing of the respondent’s memorandum, or in the event of default

by the appellant in filing the memorandum and points on appeal, the matter is to be referred to the appeals list Judge for further directions.

Woodhouse J