90 Nine Limited v Nikitin

[2020] NZHC 445

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-1326

[2020] NZHC 445

UNDER

The Insolvency Act 2006 section 17 and Rule 24.10 of the High Court Rules

BETWEEN

90 NINE LIMITED

Judgment Creditors

AND

ALEXANDR NIKITIN

Judgment Debtor

Hearing:	4 March 2020
Appearances:	Xinan Zhang and Anna Cherkashina for the Judgment Creditor Yuri Lukas for the Judgment Debtor
Judgment:	10 March 2020

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on  10 March 2020 at 12:00pm

pursuant to Rule 11.5 of the High Court Rules

………………………………………………….

Registrar/Deputy Registrar

Solicitors:

Norling Law (Brent Norling/Anna Cherkashina/Xinan Zhang), Auckland, for the Judgment Creditor Yuri Lukas, Merivale, Christchurch, for the Judgment Debtor

90 NINE LIMITED v ALEXANDR NIKITIN [2020] NZHC 445 [10 March 2020]

[1]    Ms Anna Tersintseva obtained an order in the Disputes Tribunal on 9 January 2019 that Alexander Nikitin pay her $7,000. He did not pay. He applied to the Disputes Tribunal for a rehearing, because the Disputes Tribunal had given its decision in his absence. On 12 March 2019, the Disputes Tribunal dismissed his application for a rehearing.  It was satisfied that he did receive notice of the original hearing.   Ms Tersintseva assigned the judgment debt to 90 Nine Ltd in May 2019. She gave notice of the assignment to Mr Nikitin. 90 Nine Ltd issued a bankruptcy notice based on the Disputes Tribunal order.

[2]  Mr Nikitin has applied to set aside the bankruptcy notice. He says that he has a cross-claim against Ms Tersintseva which he could not set up in the original claim against him in the Disputes Tribunal. He says that his claims against her for advances he made total $33,649:

[a]$3,850 for earrings,

[b]$1,499 for the purchase of a new cellphone

[c]$100 for a new cellphone case

[d]$18,200 borrowed between 1 November 2017 and April 2018.

[e]$10,000 for the purchase of a car.

[3]  Mr Nikitin applies under s 17 of the Insolvency Act 2006. He needs to satisfy the court that he has a cross-claim that is equal to or greater than the judgment debt or the amount that he has been ordered to pay and which he could not use as a defence in the action or proceedings in which the order was obtained.1

[4]  No difficulties arise over the assignment of the debt to 90 Nine Ltd. Mr Nikitin’s

alleged claims all accrued before 90 Nine Ltd gave notice of the assignment. He is

1      Insolvency Act 2006, s 17(1)(d)(ii) and s 17(7).

entitled to assert against 90 Nine Ltd counterclaims against Ms Tersintseva that had accrued before the assignment, even if they are unconnected to the claim that gave rise to her Disputes Tribunal order against him.2

[5]  90 Nine Ltd took a procedural point that Mr Nikitin had applied by originating application, whereas an application to set aside a bankruptcy notice should be by interlocutory application. There is nothing in that. The form for an originating application is the same as the form for an interlocutory application.3 Mr Nikitin used the correct form. I do not see why it cannot be regarded as an interlocutory application. If there has been any irregularity, I waive it under r 1.19 of the High Court Rules.   90 Nine Ltd has not been prejudiced in any way.

[6]  Mr Nikitin is from Kazakhstan. Ms Tersintseva is from Russia. They both speak Russian. They have given their affidavits in English. While Mr Nikitin told the Disputes Tribunal that he had difficulty speaking English, it does not seem to have prevented him from making a written affidavit in English.

[7]  Ms Tersintseva and Mr Nikitin were in a relationship from mid-2017 to early 2018. Mr Nikitin told Ms Tersintseva that he had a business in Kazakhstan and had exported from Kazakhstan to China. He wanted to develop a similar business exporting New Zealand products to China. One of Mr Nikitin’s friends, Mr Predtechenskii, had a company (Export Pro Ltd) which was not trading. Mr Predtechenskii transferred the company to allow Mr Nikitin to run the business. Mr Nikitin already had a company, Frontrade Invest Ltd. He persuaded Ms Tersintseva to become involved. She was appointed a director of Export Pro Ltd and Frontrade Ltd. She initially took 5 per cent shareholding. Mr Nikitin told Ms Tersintseva that because of a change in his immigration status he was not eligible to be a company director, but he could work in the business.

[8]  Ms Tersintseva eventually became a 100 per cent shareholder in Export Pro Ltd, although she contests the circumstances in which the shares were registered in her name. That aspect is not relevant for this case. She says that Frontrade Invest Ltd was

2      Business Computers Ltd v Anglo-African Leasing Ltd [1977] Ch D 578.

3      High Court Rules, rr 7.19, 19.10(1)(a) and Form G 31 of the High Court Rules, First Schedule.

removed from the Companies Register in February 2018. Ms Tersintseva says that she provided funds for the business from her personal savings. They tried to find New Zealand suppliers. She says that Mr Nikitin did not have available funds, but that he was expecting funds from overseas.

[9]  They decided to buy a car for the business - a 2006 Mercedes C180 from Grande Motors Ltd. Mr Predtechenskii worked there. Ms Tersintseva says that she bought the vehicle for $10,000 inclusive of GST and paid $773.09 for a one year mechanical warranty. Mr Nikitin told her that she could pay $7,000 and he would sort out the rest with Mr Predtechenskii. She paid a $2,000 deposit on 22 November 2017 and paid a further $5,773.09 on 24 November 2017. The vehicle would not be transferred into her name until the price had been paid in full. Ms Tersintseva let Mr Nikitin use the vehicle. She paid the insurance on the vehicle herself. She later found out that Mr Nikitin kept the vehicle for himself and had the vehicle registered in his own name. He later used the vehicle to give security to a third party.

[10]   As Mr Nikitin had taken the vehicle for himself, she bought a claim in the Disputes Tribunal against Mr Nikitin for  the  $7,000  she  had  paid  for  the  car.  Mr Nikitin did not attend the hearing on 9 January 2019. Mr Nikitin says that he contacted the Disputes Tribunal shortly before the hearing. He says that he wanted an interpreter and believed that the hearing would be adjourned until an interpreter was obtained. In the event, he did not go to the hearing and the case went ahead without him. The Tribunal ordered Mr Nikitin to pay $7,000 to Ms Tersintseva. The Disputes Tribunal rejected his application for a rehearing because the referee was satisfied that Mr Nikitin knew of the date of hearing but had chosen not to attend.

[11]   The court has an inherent jurisdiction to prevent an abuse of process. That power can be exercised in applications to set aside a bankruptcy notice. It has been exercised in cases where the judgment creditor has obtained a judgment by default against the debtor and the debtor shows procedural defects in the way that a judgment was obtained or arguable grounds of defence.4 In such cases, a common practice is to put the application to set aside the bankruptcy notice on hold, while giving the debtor

4      Re Wise HC Auckland, B227/95, B228/95, 21 June 1995 is a leading decision in this area.

the opportunity to apply to the court in which judgment was obtained to have the judgment set aside.

[12]   In this case, Ms Tersintseva obtained an order by default in the Disputes Tribunal, because Mr Nikitin did not appear at the date set for hearing. But it would not be appropriate to give Mr Nikitin an opportunity to apply for a rehearing in the Disputes Tribunal, because he has already applied and failed. There is no abuse of process in 90 Nine Ltd issuing a bankruptcy notice, after Mr Nikitin’s rehearing application has been declined. The order of the Disputes Tribunal is final. There has been no appeal from that decision. Enforcement of the Disputes Tribunal order has not been stayed. The order can be used to support the bankruptcy notice.

[13]   Part of Mr Nikitin’s claims against Ms Tersintseva is for $10,000 for the Mercedes. He says that he gave her $10,000 to buy the car. He says she paid a $2,000 deposit and a further $773.09 for the mechanical breakdown insurance. He paid the remaining $8,000 himself. He paid $3,000 in November 2017 and the rest by three payments in May, July and August 2018. Each of them has attached documents said to support their side of the story.

[14]   Mr Nikitin’s claim for $10,000 for funds advanced to Ms Tersintseva to pay for the Mercedes car could have been used as a defence to her claim against him in the Disputes Tribunal. His claim that he lent her the money to buy the case, and her claim that she paid the car with her own money and he converted the car, cannot stand together. His claim for repayment of the $10,000 would have defeated her claim that he should repay the $7,000 she spent on the car. Under Mr Nikitin’s case, on proving the loan to her, he would obtain an order against her to pay $8,000 after taking into account the $2,000 which she paid towards the vehicle. She would not have any claim against him. Mr Nikitin’s claim for the loan of $10,000 cannot be used as a cross- claim under s 17(1) and (7) of the Insolvency Act because he could have used it in defence of her claim against him in the Disputes Tribunal, although he did not in fact do so. His claim for $10,000 cannot accordingly be used to have the bankruptcy notice set aside.

[15]   That leaves the other four matters in his cross-claim. Mr Nikitin could not have used them in defence of Ms Tersintseva’s claim against him in the Disputes Tribunal. In January 2019, the monetary limit on the jurisdiction of the Disputes Tribunal was $15,000,5 unless it was extended by agreement to $20,000.6 Mr Nikitin’s remaining claims are for $23,649. The first three were within the jurisdiction of the Disputes Tribunal. The last, for $18,200, was outside the Disputes Tribunal’s monetary jurisdiction. As for the claims within the Tribunal’s jurisdiction, Mr Nikitin could not have raised them in the proceeding in which Ms Tersintseva obtained the order against him. Those matters are unrelated to the purchase of the Mercedes car. As independent cross-claims they would have been the subject of separate claims in the  Disputes  Tribunal.   They  could  not  have  been  used  in  defence  against    Ms Tersintseva’s claim. The claim for $18,200 could not have been used as a defence in the Disputes Tribunal not only because of lack of jurisdiction, but also because it was not related to the purchase of the Mercedes car. Accordingly, all four remaining claims, totalling $23,649 are cross-claims which together exceed the amount of the Disputes Tribunal order for $7,000 and could not have been used as a defence in the Disputes Tribunal proceeding.

[16]   A debtor who relies on a cross-claim under s 17(7) needs to show that they have a genuine triable claim. They must show a claim of true substance which they genuinely propose to pursue.7 In Clark v UDC Finance Ltd, Casey J referred to Australian decisions indicating that the debtor must show a prima facie case and that he should have a fair chance of success.8

[17]   The first three amounts claimed by Mr Nikitin, $3,350, $1,499 and $100, together are less than $7,000 and therefore do not satisfy the requirement to be equal to or greater than the judgment debt. The application therefore turns on the claim for

$18,200 for funds borrowed by Ms Tersintseva.

5      Disputes Tribunals Act 1998, s 10(1)(a)(b). It has since been increased to $30,000 under the Tribunals Powers and Procedures Legislation Act 2018, s 35.

6      Disputes Tribunals Act, s 13(2).

7      Clark v UDC Finance Ltd [1985] 2 NZLR 636 at 637, Sharma v ANZ Banking Group

(1992) 6 PRNZ 386 at 389, and Robertson v ASB Bank Ltd [2014] NZCA 597 at [19].

8Re Brink ex p Commercial Banking Company of Sydney (1980) 40 ALR 433, 437, Ebert v Union Trustee Company of Australia Ltd (1960) 104 CLR 346 at 350.

[18]   Mr Nikitin’s affidavit refers to a proceeding in the Auckland District Court.9 There was no evidence as to the content of that proceeding. Mr Lukas, counsel for Mr Nikitin, explained that Mr Dennis Bolverkin is suing Mr Nikitin for funds he lent. Mr Nikitin in turn has joined Ms Tersintseva as a third party, claiming the $33,649 which he relies on for his cross-claim in this application. Ms Tersintseva says that she is aware of a District Court proceeding between Mr Bolverkin and Mr Nikitin. She is not aware of having been joined as a third party in the proceeding.

[19]   In support of the claim for $18,200, Mr Nikitin simply states that his claim includes:

$18,200 that Ms Tersintseva borrowed from me between 1 November
2017 and April 2018 for supposed “business expenses”.

He gives no other evidence to support the claim. The bare assertion is not enough to establish a genuine triable claim. In submissions, Mr Lukas tried to explain the basis for the claim. That was not evidence. As Ms Tersintseva and Mr Nikitin had gone into business using a corporate entity, funds for business expenses are likely to have gone to the company rather than to Ms Tersintseva personally. There is nothing in Mr Nikitin’s case to show why the funds went to her instead of the company. There is no proof of any payment. There is no breakdown how the $18,200 is made up. The evidence falls well short of meeting the standard of a genuine and triable claim.

[20]   Mr Nikitin bought Ms Tersintseva earrings costing $3,350 at Tiffany’s on Boxing Day 2017. She says that it was a gift. He says that he lent her the money. The records from Tiffany’s show that he bought the earrings, not she. Given that he bought her the earrings at Christmas, the transaction appears to be a gift. His bid to have the gift repaid does not ring true.

[21]   The evidence as to the claims of $1,499.00 and $100.00 is contested. The sums are small. I put them to one side. They are not enough to warrant setting aside the bankruptcy notice.

9      CIV-2019-004-605.

[22]   In conclusion, Mr Nikitin has not made out a case for a cross-claim within s 17(1) and (7) of the Insolvency Act. He cannot rely on the alleged $10,000 loan for the purchase of the Mercedes car, because he should have raised that in the Disputes Tribunal proceeding in which Ms Tersintseva obtained the order against him. While he could not have used his other claims as a defence in the Disputes Tribunal proceeding, he has failed to show a genuine and arguable case for those claims, and that they are more than the Disputes Tribunal order for $7,000. Accordingly, the application to set aside the statutory demand is dismissed.

[23]   That brings to an end the period for complying with the bankruptcy notice.10 Mr Nikitin has committed an act of bankruptcy.

[24]   The primary basis for Mr Nikitin’s failure on the setting-aside application is the failure to show genuine merit in his claims against Ms Tersintseva. A District Court case is pending. In that proceeding Mr Nikitin may be able to do a better job of presenting his case.   Nothing I have set out in this judgment is intended to  bar     Mr Nikitin from pursuing any third party claim against Ms Tersintseva in the District Court.

[25]   Mr Nikitin is to pay 90 Nine Ltd costs on the setting aside application on a 2B basis. If counsel cannot agree costs, memoranda may be filed and I will decide costs on the papers.

……………………………
….

Associate Judge R M Bell

10     High Court Rules, r 24.10.