The Commissioner of Inland Revenue and Others v Chesterfields Preschools Ltd and Others

JurisdictionNew Zealand
JudgeStevens J
Judgment Date18 March 2013
Neutral Citation[2013] NZCA 53
Docket NumberCA556/2012
CourtCourt of Appeal
Date18 March 2013
Between
The Commissioner of Inland Revenue & Ors
Appellants
and
Chesterfields Preschools Limited & Ors
Respondents

[2013] NZCA 53

Court:

Randerson, Stevens and Wild JJ

CA556/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal by Attorney-General from High Court decision which held the respondent could claim for misfeasance in public office against the Attorney-General, Inland Revenue Department officers and a solicitor who acted for the department — respondent represented by its director — whether appellants could be liable for the tort of misfeasance in public office on a corporate basis — whether a private legal practitioner acting in a solicitor/client relationship for a public office holder might thereby hold public office himself — whether application of Mannix rule (company to be represented in Court by a barrister unless there were exceptional circumstances) meant director should not be allowed to continue to represent the corporate respondents — consideration of s7 Tax Administration Act 1994 (TAA) (delegation of powers by Commissioner) and s6 Crown Proceedings Act 1950 (liability of the Crown in tort) — whether claims should be struck out for non-compliance with High Court Rules as were overwhelmingly prolix — whether all of the elements of misfeasance had to be alleged against one individual.

Counsel:

J C Pike and S M Kinsler for Appellants

D J Hampton appearing for himself (as Second Respondent) and by leave for the corporate and other Respondents

JUDGMENT OF THE COURT

A The appeal is allowed in part.

B The claims against the Commissioner of Inland Revenue and Philip John Shamy are struck out.

C The proceeding against the Attorney-General and the remaining 20 named officers of the Department of Inland Revenue (remaining defendants) is stayed on terms described in D below.

D The proceeding against the Attorney-General and the remaining defendants may only proceed with the leave of a High Court Judge. Such leave shall not be granted except upon application by the respondents for leave and subject to compliance with the directions set out in [119] below.

E The respondent must pay the appellants one set of costs for a complex appeal on a band A basis and usual disbursements. We certify for two counsel.

REASONS OF THE COURT

(Given by Stevens J)

Table of Contents

Para No

A strike out application

[1]

Issues on appeal

[7]

Factual background

[8]

The second amended statement of claim

[15]

Decision under appeal

[18]

Issue 1: representation by Mr Hampton

[20]

The law

[25]

Application of law to this case

[35]

Issue 2: Should the claims against the Commissioner be struck out?

[37]

Policy considerations

[38]

Elements of the tort of misfeasance in public office

[40]

Liability of the Commissioner

[45]

The pleading in context: the liability of Crown servants

[49]

Application to this case

[63]

Issue 3: Should the claim against Mr Shamy be struck out?

[70]

Issue 4: Should the claims against any other defendants be struck out?

[83]

Contents of the statement of claim

[84]

Abuse of process

[87]

What is wrong with the second amended statement of claim?

[90]

Basis for liability against individual officers

[97]

An order striking out the entire claim?

[113]

Issue 5: A stay? And if so, on what terms?

[116]

Result and costs

[120]

Appendix 1: Summary of first amended statement of claim

Appendix 2: Outline of contents of the second amended statement of claim

Appendix 3: Summary of second amended statement of claim

A strike out application
1

This appeal relates to a claim for misfeasance in public office brought by the first to fifth respondents against the Commissioner of Inland Revenue (the Commissioner), the Attorney-General, 20 officers of the Department of Inland Revenue (the Department) and a solicitor, Mr Philip Shamy, who has acted for the Department (collectively “the appellants”). An application to strike out the claim filed by the appellants came before Associate Judge Osborne in the High Court in Christchurch. 1 It was unsuccessful. The appellants sought a review by Fogarty J. 2 That too was unsuccessful. The appellants now appeal contending that Fogarty J erred in finding that the appellants may be liable for the tort of misfeasance in public office on a corporate basis and by concluding that a private legal practitioner acting in a solicitor/client relationship for a public office holder may thereby hold public office himself.

2

The respondents are a group of related tax-paying entities that have been contesting their tax liability with the Department since the early 1990s. The person at the centre of these entities is Mr David Hampton, who has in the past represented himself and all of these entities personally. 3 The factual background (which we will describe below) emerges from two judicial review proceedings brought by the respondents against the Commissioner. In the first judicial review proceeding, the High Court Judge described the factual background thus: 4

[1] This is a difficult case. The events are spread over a long period of time. There are numerous taxpayers' accounts. The “taxpayers” have been trying to take full advantage of every strategy possible to reduce tax. The “taxpayers” accounts have now got quite out of hand. Against core assessments in excess of $900,000, there is now a total liability on paper of about $4 million, the additional $3 million being made up of late payment penalties and interest.

3

The judicial review proceedings alleged inter alia that the Commissioner had not honoured compromise arrangements made with regard to payment of tax and that there should have been earlier recognition of refunds of Goods and Services Tax (GST), which would have led to the remission of penalties on the accounts which were to benefit from the refunds. While the respondents had some success in the judicial review proceedings, they now seek to bring claims in tort for alleged misfeasance in public office against various parties.

4

In the strike out review hearing Fogarty J was asked to consider pleadings that alleged seven causes of action including a claim for breach of the New Zealand Bill of Rights Act 1990 (NZBORA). A summary of this first amended statement of claim is set out in Appendix 1. 5

5

In the course of the strike out review, the respondents filed a second amended statement of claim. 6 It was in respect of this pleading (which we will summarise later) that the review judgment was given. Its contents are central to this appeal. To say that the second amended statement of claim is extraordinary is an understatement. It was drafted by Mr Hampton. It is 139 pages in length, it runs to 419 pleaded paragraphs, has no causes of action, contains no prayers for relief and is non-compliant with the High Court Rules (HCR) in many respects. Although it is exceptionally complex and difficult to understand, we have concluded that there is a possibility that it might contain the germ of a tort claim (of some nature) against one or more officers of the Department. It is for that reason that we do not propose to accede to the appellants' request to strike it out in its entirety.

6

However, for the reasons given below we agree with the appellants that the claims against the Commissioner and Mr Shamy must be struck out. In terms of any repleading, the time has come for Chesterfield Preschools Ltd and Anolbe Enterprises Ltd (the only corporate respondents) to be represented by counsel. For that reason, and others we shall give, we will be ordering that the proceeding be stayed and may only be continued by leave of a High Court Judge upon proof of compliance with the detailed directions set out in this judgment.

Issues on appeal
7

The appeal raises the following issues for determination:

  • (a) Should Mr Hampton be permitted to continue to represent the two corporate respondents both in respect of bringing or carrying on proceedings in court (including preparation and filing of a further amended statement of claim) and in relation to future Court appearances? This issue involves the scope and application of what is commonly known as the Mannix rule. 7

  • (b) Should the claims against the Commissioner be struck out? This will require consideration of s 7 of the Tax Administration Act 1994 (TAA) and s 6 of the Crown Proceedings Act 1950, as well as the decision of this Court in Commissioner of Inland Revenue v Reid. 8

  • (c) Should the claims against Mr Shamy be struck out? This issue raises the question whether the law is as stated by this Court in New Zealand Defence Force v Berryman, 9 or in a more recent decision of the New South Wales Court of Appeal in Leerdam v Noori. 10

  • (d) Should the claims for alleged misfeasance in public office against any of the individual officers of the Department be struck out?

  • (e) If the proceeding is not to be struck out in its entirety, should the proceeding be stayed and if so on what terms?

Factual background
8

Mr Hampton and the entities under his control (the taxpayers) have been engaged in taxation disputes with the Commissioner for around 20 years. At its

basic level, the taxpayers have sought to reduce their tax payments substantially and, as a consequence, now face a large tax liability. It seems that the amount of tax payable following assessments may be around $900,000. Accumulating late payment penalties has resulted in the taxpayers' total liability rising to in excess of $4 million. Much of the dispute with the Commissioner has concerned the quantum of such tax liability and how it should be settled
9

There has already been an extensive history of litigation concerning this tax dispute, including the two judicial review hearings in the High Court. The...

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