Air National Corporate Limited v Harris

[2020] NZHC 173

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2019-404-1791

[2020] NZHC 173

IN THE MATTER OF

The Insolvency Act 2016

IN THE MATTER OF

the bankruptcy of SHANNON NICOLE HARRIS

BETWEEN

AIR NATIONAL CORPORATE LIMITED

Judgment Creditor

AND

SHANNON NICOLE HARRIS

Judgment Debtor

Hearing:	13 February 2020
Appearances:	A Cameron for Judgment Creditor N Tabb for the Judgment Debtor
Judgment:	14 February 2020
Reissued:	25 February 2020

RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 14 February 2020 at 4pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel:

A Cameron, Auckland, [email protected]

Anderson Creagh Lai Ltd, Auckland, Aaron Harlowe, [email protected] N Tabb, Auckland, [email protected]

Air National Corporate Ltd v Harris [2020] NZHC 173 [14 February 2020]

[1]    The judgment creditor (ANCL) issued a bankruptcy notice on 3 September 2019. It was served on the judgment debtor (Ms Harris), on 24 September 2019. She responded by taking two steps. First, she applied on 27 September 2019 to set aside the District Court judgment on which the bankruptcy notice was based. Secondly, she applied in this Court on 4 October 2019 for an order setting aside the bankruptcy notice. ANCL filed a notice of opposition and affidavit in this Court on 15 October 2019.

[2]    Ms Harris’ application to set aside the bankruptcy notice was called before Associate Judge Andrew on 14 November 2019. At that stage, Ms Harris’ application to set aside the District Court judgment had been heard by Judge Harrison, but no decision had been given on that application. The Associate Judge adjourned the bankruptcy application to the List on 13 February 2020.

[3]    Judge Harrison delivered a reserved judgment on 20 November 2019, in which he set aside the default judgment entered against Ms Harris in that court. The judge directed that costs on the setting aside application were to lie where they fell.

[4]    When Ms Harris’ application to set aside the bankruptcy notice came before me on 13 February 2020, counsel accepted that the bankruptcy notice would have to be set aside. It could no longer stand in circumstances where the judgment on which it was based had been set aside. I accordingly make an order setting aside the bankruptcy notice.

[5]    Counsel have been unable to resolve the issue of costs, and I heard submissions on costs at the hearing on 13 February 2020. Ms Tabb submitted that Ms Harris, having succeeded in getting the bankruptcy notice set aside, should be regarded as the successful party. She sought costs on a 2B basis totalling $5,658.

[6]    ANCL contended that it was in fact the winner, and it initially sought costs, including disbursements, totalling $8,126.

[7]    I do not consider there is any basis for Ms Harris’ claim to costs. The relevant background in the District Court may be summarised as follows.

[8]    Ms Harris’ husband had been sued in the District Court, as one of two guarantors of a debt claimed by ANCL. The other guarantor was Ms Harris, although she was not initially joined as a defendant. Mr Harris filed a defence in the District Court on 12 October 2018, raising a defence of accord and satisfaction.

[9]    Ms Harris was joined as a second defendant in the District Court proceeding in 2019, not long before a judicial settlement conference was due to be convened on 7 August 2019. An order was made abridging the time for her to file a defence to 5 working days, but she failed to file any defence within that period. ANCL obtained a judgment by default against her.

[10]   Following the judicial settlement conference (at which it appears that no settlement was reached) Judge Cunningham directed Ms Harris to file any application to set aside the default judgment, by 22 August 2019. Again, Ms Harris defaulted in meeting that obligation. Her application to set aside the District Court judgment was not in fact served on ANCL until 27 September 2019.

[11]   Ms Tabb suggested in her submissions that counsel acting for ANCL in the District Court had given an undertaking that ANCL would not enforce its default judgment against Ms Harris pending the determination of her proposed application to set that judgment aside. There is an unresolved issue between the parties as to whether the undertaking apparently given by counsel for ANCL was dependent on Ms Harris filing her setting aside application by 22 August 2019, as directed by Judge Cunningham, or whether it may have been open-ended. No doubt with that uncertainty in mind, counsel for ANCL wrote to the District Court, with a copy to Ms Harris’ solicitors, on 30 August 2019, advising that ANCL considered that it was no longer bound by any undertaking.

[12]   It appears that Ms Harris made no response to that advice, at least until after she had filed and served her application to set aside the District Court judgment on 27 September 2019.

[13]   ANCL proceeded with enforcement steps by issuing the bankruptcy notice on 3 September 2019. However, it did not serve the bankruptcy notice on Ms Harris until 24 September 2019. Ms Harris then filed and served her application to set aside the bankruptcy notice and ANCL filed its opposition.

[14]   Pausing there, I do not think Ms Harris could be entitled to any costs to that point. She effectively brought the situation on herself, first by failing to comply with the time limit for filing a statement of defence in the District Court, and then by failing to file her application to set aside the default judgment by 22 August 2019, as Judge Cunningham had directed. Ms Tabb submitted that Ms Harris had a lot of other things going on in her life at the time, but I do not think that can excuse her substantial failure to comply with the time limit fixed by Judge Cunningham for filing the setting aside application.

[15]   I do not think there could be any serious contention that ANCL was bound indefinitely not to enforce its default judgment, particularly in circumstances where Judge Cunningham had ordered that any such application had to be filed by 22 August 2019 and ANCL had given proper notice to the court and Ms Harris that it no longer regarded itself as bound by the undertaking following Ms Harris’ failure to file any setting aside application by 22 August 2019. Even then, ANCL did not proceed immediately; it did not serve the bankruptcy notice until 24 September 2019.

[16]   It seems to me, then, that ANCL was entitled to issue and serve the bankruptcy notice when it did, and that it must be entitled to costs on the bankruptcy notice and some costs for considering and responding to Ms Harris’ application to set it aside.

[17]   Beyond that point, I do not consider that the justice of the case requires an award of costs to either party.1

1      Rule 14.1 of the High Court Rules 2016 provides that all matters relating to costs of a proceeding or any step in a proceeding are at the discretion of the Court.

[18]   ANCL knew by 27 September 2019 at latest that Ms Harris’ setting aside application would be heard in the District Court in early November 2019,2 and Mr Cameron acknowledged at the hearing on 13 February 2020 that there was then an opportunity for the parties to agree to stop spending money on the bankruptcy proceeding in this court, pending the determination of Ms Harris’ setting aside application in the District Court. It would have been open to both sides to have agreed that ANCL need not file a notice of opposition to the application to set aside the bankruptcy notice pending the hearing in the District Court in a little over six weeks’ time.

[19]   It appeared that neither side considered that step, and in my view, ANCL acted unnecessarily in incurring further expense in this Court in filing the notice of opposition and supporting affidavit without at least attempting to negotiate a time extension of the kind just mentioned. If ANCL had approached Ms Harris with a request for an extension of time to file its notice of opposition (and if need be for an enlargement of the first call of the bankruptcy proceeding in this court), it is difficult to imagine that Ms Harris would not have agreed. But it appears there was no approach made by either side along those lines. In those circumstances, I do not consider that the justice of the case calls for an award of costs to either party, for attendances after 27 September 2019.

[20]   ANCL is entitled to some costs and disbursements on the issue of the bankruptcy notice, and Mr Cameron told me that the amount payable on a 2B basis by way of costs on the bankruptcy notice would be $678 (including the $200 filing fee). I think ANCL is also entitled to some further costs for attendances responding to the application to set aside the bankruptcy notice, but not to the extent claimed. In my view, the justice of the case will be met by an award of costs to ANCL in the total sum of $1,750, including any disbursements.

[21]   I record that, in the course of submissions, Mr Cameron did reduce ANCL’s claim to a total of $2,590, but that included costs in preparing a memorandum for the 13 February 2020 hearing and appearing at that hearing, and I consider those costs are

2      The original hearing date allocated was 7 November 2019, but the application was not in fact heard until 13 November 2019.

sufficiently covered within the $1,750 costs I propose to award. Also, I bear in mind that, in setting aside the District Court judgment, Judge Harrison appears to have considered that Ms Harris may have an arguable defence to ANCL’s claim against her.3 While I cannot put too much weight on the Judge’s decision made on a summary basis, without the benefit of full evidence and submissions, the decision does suggest that caution is required in considering ANCL’s costs claim in circumstances where it cannot be said with any certainty that Ms Harris will eventually be found liable. She is, however, responsible for the procedural mishaps which have seen the bankruptcy notice issued and necessitated Ms Harris’ setting aside application in this court and ANCL being required to consider it and make an appropriate response to it.

[22]   I record Ms Tabb’s submission that ANCL has acted oppressively in obtaining the default judgment and then proceeding to enforce it by way of a bankruptcy notice. I note that Mr Gray of ANCL is Ms Harris’ brother, and that there are other proceedings in this court in which they are involved. However, I do not think I can put much weight on that. ANCL was entitled to take steps available to it under the Insolvency Act and the rules, and Ms Harris cannot complain if her own defaults in complying with court orders have resulted in her incurring costs awards.

Result

(1)The bankruptcy notice issued by ANCL on 3 September 2019 is set aside.

(2)Costs are awarded in favour of ANCL in the sum of $1,750.

(3)Ms Harris’ application for costs in this court is dismissed.

Associate Judge Smith

3      It appears to have been accepted by Judge Harrison that any defence of accord and satisfaction that might be available to Mr Harris would logically also be available to the co-guarantor, Ms Harris.