Commissioner of Inland Revenue v Stiassny

JurisdictionNew Zealand
JudgeRanderson J
Judgment Date15 March 2012
Neutral Citation[2012] NZCA 93
Docket NumberCA775/2010
CourtCourt of Appeal
Date15 March 2012
Between
Commissioner of Inland Revenue
Appellant
and
Michael Peter Stiassny
First Respondent

and

Grant Robert Graham
Second Respondent

and

Forestry Corporation of New Zealand Limited (In Receivership)
Third Respondent

and

Citic New Zealand Limited (BVI) (In Receivership)
Fourth Respondent

and

CNI Forest Nominees Limited and Bank of New Zealand
Fifth Respondents

[2012] NZCA 93

Court:

Glazebrook, Randerson and Harrison JJ

CA775/2010

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal by Commisioner of Inland Revenue from a High Court decision declining to strike out the respondents' (“Rs”) claim — Rs were companies that traded in a forestry partnership (“FP”), the security trustees or secured creditors (“the SCs”) who provided funding for the FP operations, and the receiver's (“REs”) for the companies — REs appointed to act in respect of the assets charged under the relevant security documents — companies placed in receivership but FP was not in receivership — FP agreed to sell forestry assets — agreement for sale provided GST to be paid by companies of by REs — deed was entered into by the Rs providing retention by the REs of sufficient funds to enable payment of the GST on the sale — after legal advice REs paid GST of $127.5 million (by cheque) as advised of significant risk they would be held personally liable for the GST — — whether REs were personally liable to pay GST — whether s95 Personal Property Securities Act 1999 (priority of creditor who receives payment of debt) conferred priority over R's claim — could payment be recovered on basis paid under mistake of law.

Counsel:

D J Goddard QC and H W Ebersohn for Appellant

M Crotty for First, Second and Third Respondents

R G Simpson, D K Simcock and J Q Wilson for Fourth Respondent

J McKay for Fifth Respondents

A The appeal is allowed.

B The respondents' claim against the appellant in the High Court is struck out.

C The respondents must pay costs to the appellant as for a complex appeal on a band A basis. We certify for two counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Para No

Introduction

[1]

The issues

[13]

Were the receivers personally liable to pay the GST?

[15]

Whether s 95 of the PPSA operates so as to confer priority to the Commissioner over any claim the respondents have to the GST

[32]

Was the payment debtor-initiated?

[39]

The assertion by the respondents that the sale proceeds belonged to the secured creditors

[50]

Does s 95 apply where a receiver has been appointed?

[61]

Conclusions on the s 95 issue

[68]

Can any of the respondents recover the GST from the Commissioner on the basis it was paid under a mistake of law, namely that the receivers were personally liable to pay the GST?

[73]

Claims by the secured creditors

[76]

Claim by the receivers

[82]

An in personam remedy for the CNIFP?

[84]

Summary

[111]

Result

[113]

Introduction
1

The broad issue in this appeal is whether the High Court was right to decline to strike out the respondents' claim to recover from the appellant Commissioner a GST payment of $127.5m paid to him following a sale of substantial forestry assets in 2003.

2

The factual background is largely undisputed. At material times, the third respondent (FCNZ) and the fourth respondent (CITIC) traded in a forestry partnership known as the Central North Island Forest Partnership (the CNIFP). Funding for the CNIFP operations was provided by syndicates of banks for which the fifth respondents (the secured creditors) were the security trustees. The secured creditors held security over the assets of the CNIFP and the individual assets of FCNZ and CITIC.

3

On 26 February 2001, one of the fifth respondents (the BNZ) appointed the first and second respondents (the receivers) to act in respect of the assets charged under the relevant security documents. The Commissioner was notified of the appointment of the receivers on the same day. Although both FCNZ and CITIC were placed in receivership, the receivers were not appointed in respect of the CNIFP. 1 However, FCNZ and CITIC each appointed one of the receivers as its representative on the management board of the CNIFP with effect from 26 February 2001. From that date, the receivers controlled the management board of the CNIFP.

4

On 10 October 2003, the CNIFP entered into a sale and purchase agreement under which it agreed to sell its assets for USD 621m plus GST of NZD 127.5m. FCNZ and CITIC, in their capacity as the partners of the CNIFP, were named as vendors in the sale and purchase agreement. The proceeds of sale were insufficient to repay in full the secured amounts and the GST payable to the Commissioner on the sale.

5

A deed relating to the application of the sale proceeds was entered into on the same date as the sale agreement. The deed was made between FCNZ and CITIC as the partners of the CNIFP, the receivers and BNZ. We refer to this deed in more detail below but, amongst other things, it provided for the receipt into the CNIFP's New Zealand bank account of part of the funds arising from the sale of the forestry assets and for the retention by the receivers of sufficient funds to enable payment of the GST on the sale. The sale of the forest assets was settled in December 2003 when the CNIFP received the proceeds of sale together with the agreed sum for GST.

6

On 19 December 2003, solicitors acting for CNI Forests Nominees Ltd and Fletcher Challenge Forests Finance Ltd wrote to the Commissioner, the receivers and the BNZ claiming that, by second ranking security documents, they had an entitlement to the proceeds of sale under their securities which ranked ahead of the Commissioner's unsecured claim for GST. The companies reserved their rights to bring a claim against the Inland Revenue Department to recover the GST paid on the sale of the CNIFP assets. A similar letter was sent by the BNZ to the Commissioner and the receivers on 29 January 2004.

7

After taking legal advice, the receivers considered there was a significant risk that they would be held personally liable for the GST arising on the sale. If they did not make the payment of GST when due, they could be exposed to a claim from the Commissioner for the GST and penalties and interest. From a practical viewpoint, there was insufficient time to seek a court ruling.

8

On the basis of the legal advice received, the receivers filed a GST return on 29 January 2004 in the name of the CNIFP as the party registered for GST purposes. On the same day, the receivers drew a cheque for $123,416,346.20 in favour of the Inland Revenue Department. 2 The cheque was drawn on an account styled “For Central North Island Forestry Partnership (Receivers A/C)”. In dismissing the Commissioner's application to strike out the proceeding, Allan J noted that the CNIFP was not in receivership but the account was styled in that fashion to indicate that the receivers controlled it.

9

In March 2004, the receivers filed a Notice of Proposed Adjustment under the Tax Administration Act 1993 in respect of the GST payment. The Commissioner rejected the notice on 3 May 2004.

10

The respondents later commenced proceedings in the High Court in which they asserted that, contrary to the view earlier taken by the receivers, they were not personally liable to pay the GST. 3 They sought to recover the GST payment on the basis that it was paid under a mistake of law, namely the mistaken belief that the receivers were personally liable to pay the GST.

11

The Commissioner subsequently applied to strike out the respondents' proceedings on the broad grounds that:

  • (a) The receivers were personally liable in law to pay the GST.

  • (b) The GST was paid by the CNIFP from its own funds by way of negotiable instrument and, accordingly, the Commissioner had priority to the amount of the payment under s 95 of the Personal Property Securities Act 1999 (the PPSA).

  • (c) There was no basis in law to recover the payment made to the Commissioner since it was paid by the CNIFP to discharge a debt which the CNIFP owed to the Commissioner and was received in good faith.

12

Allan J found that:

  • (a) The receivers were not personally liable to pay the GST.

  • (b) The payment was made by the CNIFP from its own funds by way of negotiable instrument and s 95 of the PPSA applied so as to accord the Commissioner priority over the secured creditors to the GST.

  • (c) However, s 95 of the PPSA did not preclude an in personam claim against the Commissioner for recovery of the GST. While it was arguable the payment was made by reason of a mistake, in view of the developing state of the law in relation to payments made under

    mistake, and the need to resolve factual issues such as whether the Commissioner received the payment in good faith, it was not appropriate to strike out the proceedings before trial.
The issues
13

Against that background, the issues arising on appeal are:

  • (a) Whether the receivers were personally liable to pay the GST (in which case it is agreed that the GST is a receivers' expense or liability 4 and the Commissioner is entitled to retain the sum paid).

  • (b) Whether s 95 of the PPSA operates so as to confer priority to the Commissioner over any claim the respondents have to the GST.

  • (c) Whether the respondents can recover the GST from the Commissioner on the basis it was paid under a mistake of law namely that the receivers were personally liable to pay the GST.

14

We have had the benefit of argument on these issues from Mr Goddard QC for the Commissioner and from Mr Simpson who presented submissions on behalf of all respondents. We also heard from Mr Simcock who carried the argument on the first issue.

Were the receivers personally liable to pay the GST?
15

There is no dispute that the sale of the CNIFP assets...

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