Application of High Court orders stayed by Court of Appeal

2009 case note – CIR successful in staying the application of orders made in the High Court pending resolution of appeal to the Court of Appeal – costs.

Case

Commissioner of Inland Revenue v Chesterfields et al

Legislative References

Court of Appeal (Civil) Rules

Summary

The Commissioner was successful in staying the application of orders made in the High Court pending resolution of his appeal to the Court of Appeal.

Impact of decision

This is an interlocutory step in a protracted litigation with the taxpayers.

The case highlights that the mere fact an appeal has been lodged does not stay the effect of any orders a lower court may have made: this requires a formal stay application.

Also of note is the Court's concern as to the solvency of the taxpayers when the costs were being considered. In the absence of clear evidence of solvency in the advent the Commissioner's appeal succeeds, the balance was in favour of staying the payment of costs to the taxpayers. This factor seems to create an evidential onus upon the taxpayer (in this case) to prove their solvency if costs are subject to an application for a stay.

Facts

At the High Court the taxpayers were successful in a judicial review against the Commissioner and in gaining a substantial award of costs payable to them by the Commissioner (see: Chesterfield Preschools Ltd v CIR (2009) 24 NZTC 23,148 and Chesterfield Preschools Ltd v CIR (2009) 24 NZTC 23,504). These cases were the result of an earlier judicial review: see (2007) 23 NZTC 21,125.

The Commissioner applied to the Court of Appeal to stay the application of both the substantive decision and the costs decision. The taxpayer opposed the application. The Commissioner had earlier obtained an interim stay of the judgments, pending a fully argued case upon the application before the Court of Appeal.

Before the Court of Appeal the Commissioner argued that:

"... without a stay the appeals would be rendered nugatory because the Commissioner would be required to give irreversible effect to the High Court's orders. The Commissioner also says the respondents are probably insolvent and there is no realistic security for repayment of costs if the Commissioner is successful. Against this background, the Commissioner says the status quo should be preserved and third parties would not be prejudiced." (par [12])

The taxpayer opposed this arguing (as summarised by the Court):

"[14] First, Mr Hampton [for the taxpayers] points to the adverse effect on the respondents of delays in resolving the issues between the parties. He notes the respondents' assets have been the subject of freezing orders since 2005. Mr Hampton says that those orders impact on the ability of the respondents to fund the litigation and on the well-being and security of the assets.
[15] Secondly, the respondents submit that the Commissioner's appeals would not be rendered nugatory because Ms Sisson's undertaking gives sufficient security for the Commissioner.
[16] Thirdly, Mr Hampton emphasises that the Commissioner did not appeal against the first judgment. The judicial review appeal is, he submits, a back-door means of challenging the Judge's original findings which were not appealed.
[17] Finally, Mr Hampton says the various factors were appropriately considered by Fogarty J in the Judge's decision declining a stay and there is no good reason for this Court to take a different view."

Decision

The Court of Appeal granted the stays sought by the Commissioner.

In granting the stays the Court applied the test found in Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 which requires the Court to balance the competing rights of the party who obtained the judgment appealed from, and the benefits of that judgment, against the need to preserve the appellant's position against the event of the appeal succeeding.

The considerations, in granting a stay, required to be taken into account are found in New Zealand Insulators Ltd v ABB Ltd (2006) 18 PRNZ 459 at [11].

Despite some reservations regarding the effect of delay upon the taxpayers' financial position, the Court accepted the Commissioner's submission that the lack of a stay would force him to take statutory steps (under the High Court decisions) which could not be reversed and thus render the appeal pointless:

"[24] The judicial review appeal would be rendered nugatory because, absent a stay, the Commissioner would have to take steps in terms of the relevant statutory powers to give effect to the second judgment that could not then be undone. It is not an answer to this point to say the Commissioner did not appeal the first judgment. That factor appears to have been influential in Fogarty J's decision to decline a stay. It was however, open to the Commissioner to act on the first judgment on the assumption that reconsideration would resolve the matter. The fact that reconsideration resulted in a further challenge does not alter the balance of convenience in the context of a stay application."

The Court also accepted that the apparent insolvency of the taxpayers meant the costs judgment should also be stayed saying;

"Nor does the fact of Ms Sisson's undertaking alter the position. Over the course of the hearing there was some discussion about the respondents' assets and the extent to which they are encumbered. There is material in the evidence before us on the stay application which suggests that as at late 2008, there were issues about solvency but it is difficult to get a clear picture of the current state of the assets. In the end, this is not critical because Mr Hampton accepts that if the Commissioner's decisions as to the tax owing are upheld on appeal the respondents will be insolvent. In our view, the fact the costs would be paid to a party who is possibly insolvent weighs strongly in favour of a stay. Plainly, the costs appeal too would be rendered nugatory if a stay were not granted. The fact of the respondents' insolvency, should the Commissioner succeed, is also relevant to the interests of third parties (creditors) which might otherwise be relevant in this context." (at par [25])

Issued

2009

Decision

29 Aug 2009

Appeal Status

Appealed