Emborion International Limited v Commissioner of Inland Revenue [2018] NZHC 178 (19 February 2018)

Last Updated: 23 February 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2017-404-2920 [2018] NZHC 178

BETWEEN	EMBORION INTERNATIONAL LIMITED Applicant
AND	THE COMMISSIONER OF INLAND REVENUE Respondent

Hearing:	15 February 2018
Appearances:	G F Rogers and J G Russell, in person, Applicant M Deligiannis, K Naik-Leong and V Tuyay for Respondent
Judgment:	19 February 2018

_{JUDGMENT OF VAN BOHEMEN J}

This judgment was delivered by me on 19 February 2018 at 4.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

So licito r s :

Crown Law, Wellington

Co p y to :

Ms G F Rogers, Auckland

Mr J G Russell, Auckland

EMBORION INTERNATIONAL LIMITED v THE COMMISSIONER OF INLAND REVENUE [2018] NZHC

178 [19 February 2018]

Introduction

[1] Emborion International Ltd (Emborion), challenges tax assessments by the respondent, the Commissioner of Inland Revenue (Commissioner) disallowing interest deductions and other losses claimed by Emborion. The first case management conference was convened before me on Thursday 15 February 2018.

[2] Emborion filed its Notice of Claim dated 29 June 2016 in the Taxation Review Authority. On 4 October 2016, the Commissioner applied to the High Court, on notice to Emborion, to transfer Emborion’s proceeding to the High Court on the grounds, inter alia, that the proceedings are moderately complex, that they involve a tax arrangement orchestrated by John George Russell, and three other proceedings involving similar issues with companies associated with Mr Russell have been transferred from the Authority to the High Court.

[3] By Minute dated 1 November 2016, Moore J granted the Commissioner’s application, noting that no Notice of Opposition to the Commissioner’s application had been filed within the prescribed time period. By Minute dated 12 April 2017, Moore J refused Emborion’s application to recall his decision of 1 November 2016. Emborion’s application followed the filing, out of time, of a Notice of Opposition to the Commissioner’s application.

[4] In his Minute of 12 April 2017, Moore J noted:

[3] ... While numerous grounds were advanced by [Emborion] in opposition the essence is that Emborion does not have the financial means to instruct lawyers to represent it in the High Court. Mr Russell, not being a barrister and solicitor of this Court, has no right of audience before the High Court. There are no exceptional circumstances which would permit him to represent the respondent. However, if the dispute was to remain before the Authority Mr Russell would be able to represent [Emborion].

[5] Later in his Minute, Moore J included the following observation in setting out his reasons for refusing Emborion’s recall application:

_{[12] ...}

(e) My orders do not have the effect of denying [Emborion] its ability to advance its case. The issue raised by Mr Russell is that it will be hampered in doing so by reason of impecuniosity.

[6] A number of documents were prepared prior to the conference of 15 February

2018:

(a) On 31 January 2018, Emborion lodged an application dated 30 January

2018 and signed by Emborion’s sole director, Glenda Frances Rogers, seeking orders that:

(i) Emborion’s challenge be heard “on the papers” based on submissions from Emborion and the Commissioner; and

(ii) The Commissioner meet all of Emborion’s legal fees and court costs.

An affidavit sworn by Mrs Rogers and dated 27 January 2018 was lodged

in support of Emborion’s application.

(b) On 31 January 2018, Emborion lodged a memorandum for the case management conference, signed by Mrs Rogers, setting out Emborion’s views on various substantive and procedural matters raised in the proceeding and included a proposed timetable on which, the memorandum stated, the parties were in agreement.

(c) On 2 February 2018, counsel for the Commissioner filed a memorandum in response to the Emborion memorandum of 31 January

2018. In that memorandum, counsel for the Commissioner said, inter alia, that:

(i) Whether Mrs Rogers has standing to file documents on behalf of Emborion needed to be dealt with prior to the matter advancing;

(ii) The Commissioner opposed Emborion’s application to have the substantive challenge heard on the papers;

(iii) The Commissioner largely agreed with the identification of the matters at issue in the proceeding and the proposed procedural steps in Emborion’s Memorandum, subject to resolution of the question whether Emborion will require legal representation;

(iv) The Commissioner also agreed with the timetabling proposed in the Emborion memorandum, again subject to resolution of the question of whether Emborion’s legal representation.

(d) On 13 February 2018, the Commissioner filed a Notice of Opposition to Emborion’s application of 30 January 2018 that Emborion’s challenge be heard on the papers and that the Commissioner pay Emborion’s legal fees and court costs. An affidavit sworn on 13

February 2018 by John Nicholas Rollo was filed in support of the

Commissioner’s Notice of Opposition.

[7] Mrs Rogers, accompanied by Mr Russell, attended the conference on 15

February 2018 on behalf of Emborion. Ms Deligiannis and Mrs Naik-Leong of the Crown Law Office and Ms Tuyay of the Inland Revenue Department represented the Commissioner.

[8] It was agreed at the conference that the following required consideration:

(a) Representation of Emborion in the conduct of the proceeding and, in particular, at the substantive hearing;

(b) Emborion’s application for the matter to be determined on the papers;

(c) The matters for consideration under Schedule 5 of the High Court

Rules.

Representation of Emborion

[9] As I said to Mrs Rogers, the Court is willing to be flexible on representation on pre-trial matters such as conferences. However, when it comes to appearing at formal court hearings the situation is very clear – as Mr Russell is well aware. It was

Mr Russell’s wish to represent a company in proceedings before the High Court that resulted in the Court of Appeal’s decision in Re G J Mannix,¹ the leading case on the ability of directors and company officers to represent companies in Court proceedings.

[10] Re G J Mannix confirmed that a company has no right to be represented in the conduct of a case in Court except by a barrister or solicitor, and that no-one has a right to appear as an advocate in any New Zealand Court unless admitted as a barrister and solicitor. The Court of Appeal in Mannix accepted that all Courts have a residual discretion to allow unqualified advocates to appear before them and Cooke J identified situations where a Court ought to be prepared to grant audience to non-lawyers “as a reserve or occasional expedient”. – Ms Deligiannis said Mr Russell’s situation did not fall within any of the exceptions identified in Mannix. Mrs Rogers did not contest that point. Moreover, as I said to Mrs Rogers, there are further constraints in the Lawyers and Conveyancers Act 2006.

[11] Mrs Rogers, with input from Mr Russell, referred to the requirements in s 6 of the New Zealand Bill of Rights Act 1990 (NZBORA) to interpret legislation consistent with the rights and freedoms contained in NZBORA and in s 29 of NZBORA, as far as practicable, to apply the provisions of NZBORA to legal persons as well as for the benefit of all natural persons. Mrs Rogers also referred to the definition of “person” in s 29 of the Interpretation Act 1999 under which “person” includes a body corporate. Mrs Rogers argued that these provisions suggested the Court should take a more accommodating view towards directors representing companies in legal proceedings.

[12] Ms Deligiannis observed that in paragraph 23 of Mrs Roger’s affidavit sworn on 27 January 2018, Mrs Rogers had stated that Emborion had made the decision not

¹ Re G J Mannix [1984] 1 NZLR 309 CA.

to apply to the Court for self-representation. The Commissioner had relied on the that statement and for that reason had not prepared full submissions on the question of self- representation. Without retracting the statement in her affidavit, Mrs Rogers confirmed, in response to my question, that Emborion did seek the Court’s leave for the company to represent itself through Mrs Rogers, its director.

[13] I acknowledge that the Commissioner had not prepared full submissions on the question of whether Mrs Rogers may represent Emborion before the High Court because of what was said in paragraph 23 of Mrs Rogers’ affidavit. The Commissioner’s position, however, was clear. It was that Mrs Rogers could not represent Emborion in substantive High Court proceedings having regard to the Court of Appeal decision in Mannix. For that reason, I consider I have a sufficient basis on which to make a decision on the question of representation.

[14] The essence of the argument advanced by Mrs Rogers was that, notwithstanding the decision in Mannix, the Court should regard Mrs Rogers, as Emborion’s sole director, as being the company. On that basis, Mrs Rogers would not fall foul of the constraints in the Lawyers and Conveyancers Act 2006 because Mrs Rogers would be Emborion which would be representing itself.

[15] I was not persuaded by that argument during the conference and I remain unpersuaded. Cooke J’s judgment in Re G J Mannix shows that much the same argument was made in that case where counsel for Mannix relied on the fact that, as a matter of law a company has the rights and powers of a natural person. Cooke J dealt with that argument as follows:²

Mr Bogiatto placed much stress on the right of an individual to appear in person, invoking inter alia s 15A(1) of the Companies Act 1955, inserted in

1983, which provides “Subject to this Act, a company has the rights, powers

and privileges of a natural person ...”. However, Parliament cannot turn a company into a natural person. Obviously some activities such as appearing and speaking cannot be performed by something that has no physical existence. There would be a possibility of saying that, by analogy, persons identified with a company on the Tesco³ principle should be treated physically as the company. But it would be at best an artificial analogy. Before adopting

² Re G J Mannix [1984] 1 NZLR 309 (CA) at 312

³ Tesco Ltd v Nattrass [1971] UKHL 1; [1972] AC 153 (HL). Earlier in his judgment, at p 310, Cooke J referred to this decision and Lord Reid’s reference to a person who speaks and acts as the company and is its embodiment or mind and identified with it.

it, one would have to be satisfied that it accorded with public policy. I think not, as a person who is the directing mind and will of a company may be as unskilled in legal matters as any lesser agent.

[16] Cooke J’s reasoning applies as much today as it did in 1984 and what is said about s 15A of the Companies Act 1955 applies equally to ss 6 and 29 of NZBORA and s 29 of the Interpretation Act 1999. Those sections do not make companies into natural persons. Anyone who appears for a company appears as its representative and not as the company itself. Accordingly, the rule in Mannix applies, as do the constraints in the Lawyers and Conveyancers Act 2006 under which, pursuant to ss 6,

24 and 27, a person who is not a lawyer may not represent any other person in any proceedings before any New Zealand court or New Zealand tribunal, unless the representation is required or allowed by an Act or regulations or by the court or tribunal.

[17] I see no basis, therefore, for departing from G J Mannix and I rule that Emborion may not be represented in this proceeding except by a barrister or solicitor. This ruling applies to the substantive hearing of Emborion’s challenge and to any substantive pre-trial hearings.

[18] Ms Deligiannis also seeks a ruling on Mrs Roger’s standing to file documents in the proceeding. I am prepared to grant Emborion some latitude on that question in order to progress pre-trial matters such as discovery, not least because, as I discuss below, the parties have agreed a timetable that will require action in the coming weeks. However, if Emborion intends to pursue its challenge, it should obtain professional legal advice as soon as possible. That would also be in its own best interests, not least so as to avoid the kinds of inaccuracies and misunderstandings contained in Mrs Rogers’ affidavit and pointed to in the Commissioner’s Notice of Opposition regarding the jurisdiction and competence of the High Court.

[19] In addition, as noted above at [9], the Court is prepared to be flexible in interlocutory matters such as attendance at conferences, but that flexibility can extend only to directors and officers of Emporion. While no objection was made to

Mr Russell’s participation in the conference on 15 February 2018, if Mr Russell should

attend any future conferences, he will not be able to address the Court on behalf of the company.

Emborion’s application for the proceeding to be determined on the papers

[20] As Emborion’s application made clear and Mrs Rogers confirmed both in her affidavit and at the conference, Emborion’s application to have its substantive challenge to the Commissioner’s assessments heard on the papers is made because Emborion says it does not have the financial means to pay for legal representation and it is unable to represent itself without the leave of the Court – which I have just declined.

[21] Whether or not Emborion is as impecunious as it asserts has not been established. As the Commissioner’s Notice of Opposition points out, there is no evidence of this other than statements in Emborion’s application and Mrs Rogers’ affidavit. But whether or not Emporion is impecunious, whether a substantive proceeding is heard in the usual way in open court or on the papers is not determined by reference to the financial resources of the applicant. Rather, it is to be determined by considering the nature and complexity of the issues likely to require resolution, whether viva voce evidence will be called, and whether parties wish to cross-examine witnesses.

[22] The Commissioner’s Notice of Objection and Ms Deligiannis in submissions made clear the Commissioner’s view that it is not appropriate for the matter to be heard on the papers. The Commissioner says this is because of the nature of the transaction which is said to constitute a tax avoidance arrangement, administrative law issues raised by Emborion, including allegations that the Commissioner’s decisions to disallow the losses were unreasonable, invalid and unlawful, and that there is a dispute over whether some of the Commissioner’s decisions are time-barred. These factors demonstrate, the Commissioner says, that the matter is not straightforward, will require review of a substantial amount of documentary evidence and assessment of oral evidence and the credibility of witnesses.

[23] Mrs Rogers and Mr Russell took issue with aspects of Ms Deligiannis’s characterisation of the points at issue and in so doing underlined the level of disagreement between the parties. This confirmed my preliminary assessment that it would be a difficult matter for a judge to determine on the papers.

[24] What the parties did not dispute, however, is that the hearing is likely to take 5 days and that each is likely to call one witness – Mr Russell for Emborion and the investigator from the Inland Revenue Department for the Commissioner. In addition, Ms Deligiannis informed me that the Commissioner will likely wish to cross examine Mr Russell. All of these factors make it improbable that the matter could be satisfactorily determined on the papers.

[25] Accordingly, I dismiss Emborion’s application to have the matter determined on the papers. I also dismiss Emborion’s application to have its legal fees and court costs met by the Commissioner. Costs on the outcome of the substantive challenge fall to be determined once the outcome is known. The fact that the Commissioner has sought and obtained leave to transfer the matter to the High Court is not a reason for the Commissioner to pay Emborion’s legal costs.

Schedule 5 of the High Court Rules

[26] Despite the disagreements recorded above, the parties are largely in agreement on the matters to be considered under Schedule 5 of the High Court Rules.

[27] Emborion’s Memorandum of 31 January 2018 and the Commissioner’s

Memorandum of 2 February 2018 show that the parties agree on the following:

(a) Essential Issues of Fact and Law:

(i) Tax avoidance arrangement: paragraphs [2] – [4] of Emborion’s

Memorandum reflect the parties’ contentions.

(ii) Entitlement to losses: paragraphs [5] – [6] of Emborion’s

Memorandum reflect the parties’ contentions.

(iii) Shortfall penalties: paragraphs [7] – [4] of Emborion’s

Memorandum reflect the parties’ contentions.

(iv) Time bar issue: paragraphs [11] – [14] of Emborion’s Memorandum reflect the parties’ contentions. In addition, the Commissioner says she is not estopped from reassessing the

1992 to 1996 years, nor is she prevented from reassessing years previously subjected to audit.

(v) Estoppel: paragraphs [15] – [17] of Emborion’s Memorandum reflect the parties’ contentions.

(vi) Administrative law: paragraphs [18] – [20] of Emborion’s Memorandum reflect the parties’ contentions. The Commissioner identifies two matters she says were not raised in Emborion’s Statement of Position and says Emborion cannot now raise these as issues under s 138 of the Tax Administration Act 1994. These arguments can be dealt with at trial if not resolved earlier.

(vii) Pleadings: the parties agree the pleadings are in final form and are as set out in paragraphs [23] – [24] of Emborion’s Memorandum.

(viii) Additional parties: the parties agree no additional parties need to be joined.

(b) Track: the Commissioner considers the Ordinary Track is appropriate.

Emborion does not because it opposed the transfer of the proceeding from the Taxation Review Authority. However, the transfer has been approved. I rule the Ordinary Track is appropriate.

(c) Cost categorisation: the parties agree the proceeding should be classified as category 2 for the purposes of Rule 14.3 of the High Court Rules.

(d) Discovery: While Emborion and the Commissioner disagree on the scope of discovery, as noted below they both agree to a timetable that includes discovery and they agree that standard discovery is appropriate.

(e) Initial disclosure: the parties agree initial disclosure is not required.

(f) Duration of hearing: the parties agree that the likely duration of the hearing is 5 days. Each party anticipates calling one witness.

(g) Timetable: the parties agree to the timetable in the schedule to this judgment.

(h) Evidence: the parties agree evidence should be introduced in the usual way.

(i) Hearing date: as agreed at the conference, the matter is set down for hearing starting 4 March 2019 unless an earlier date becomes available.

(j) Special resources at hearing: the parties agree no special resources are required.

(k) Short notice list / back up fixture: the parties agree the proceeding is not suitable for the short notice list or as a back-up fixture. However, the proceeding could be heard earlier than March 2019 if a suitable date becomes available after Emborion has prepared, filed and served the agreed bundle of documents, which it is required to do by 15 August

2018 in accordance with the timetable in the schedule to this judgment.

(l) Settlement conference / alternative dispute resolution: the parties agree the matter is not currently able to be settled but agree to keep the Court informed of progress with any settlement discussions.

[28] Leave is reserved to apply if the parties require assistance with any of the procedural steps in the timetable set out in the schedule to this judgment.

van Bohemen J

Schedule: Timetable

1. Emborion to file and serve its affidavit of documents for discovery by 30 March

2018.

2. The Commissioner to file and serve her affidavit of documents for discovery by

30 April 2018.

3. Inspection to be completed by 15 May 2018.

4. Emborion to file and serve any briefs of evidence of witnesses and an index of documents to be included in an agreed bundle of documents by 30 June 2018.

5. The Commissioner to file and serve any briefs of evidence of witnesses and any additions/amendments to the index of documents to be included in an agreed bundle of documents by 31 July 2018.

6. Emborion to prepare, file and serve an agreed bundle of documents by 15 August

2018.

7. A witness may produce any documents not included in the agreed bundle by attaching the same to the brief of evidence for production in the usual way.

8. Emborion to file and serve a synopsis of its submissions 10 working days before the hearing date.

9. The Commissioner to file and serve a synopsis of its submissions 5 working days before the hearing date.

10. The parties are to prepare a list of authorities 3 working days before the hearing date.