Anderson v DeMarco

[2021] NZHC 1757

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-130

[2021] NZHC 1757

BETWEEN

NORMAN HUGH ANDERSON and REBECCA ALICE CARRASCO
Judgment Creditors

AND

EUGENE JOHN DEMARCO

Judgment Debtor

CIV-2021-485-132

BETWEEN

NORMAN HUGH ANDERSON and REBECCA ALICE CARRASCO
Judgment Creditors

AND

EUGENE JOHN DEMARCO

Judgment Debtor

Hearing:	8 July 2021
Appearances:	E S K Dalzell and D Viatos for judgment creditors C J Tennet for judgment debtor (leave to withdraw) Judgment Debtor in person
Judgment:	14 July 2021

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

This judgment was delivered by me on 14 July 2021 at 4.00 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

ANDERSON v DEMARCO [2021] NZHC 1757 [14 July 2021]

[1]    Before the Court for determination are applications by the judgment creditors in these two proceedings, Norman Anderson and Rebecca Carrasco, for orders adjudicating the judgment debtor, Eugene DeMarco, bankrupt, and applications by Mr DeMarco for a stay or halt of both proceedings.1

[2]    The parties entered into an agreement in which Mr DeMarco agreed to sell and Mr Anderson and Ms Carrasco agreed to purchase a residential property in Wellington. Mr Anderson and Ms Carrasco paid a deposit of $120,000. Between the date of the agreement and settlement, Mr Anderson and Ms Carrasco cancelled the contract, alleging that Mr DeMarco (directly or through his agents) had misrepresented the state of the property, which suffered from weathertightness problems, or was in breach of a warranty contained in the contract in relation to work carried out on it.

[3]    Following a largely unsuccessful interlocutory application by Mr DeMarco, in June 2020 I made a costs award in favour of Mr Anderson and Ms Carrasco totalling

$6,811.50.2

[4]    The proceeding was eventually set down for trial in September 2020 and in November 2020 Cooke J issued a judgment in which his Honour found in favour of Mr Anderson and Ms Carrasco and awarded damages (including the amount of the deposit).3 Subsequently, in March 2021, his Honour made a costs award in their favour. In total judgment was entered for the sum of $323,441.53.4

[5]    Mr Anderson and Ms Carrasco served bankruptcy notices on Mr DeMarco in relation to both judgment debts. Mr DeMarco did not comply with either notice. Accordingly, Mr Anderson and Ms Carrasco commenced these bankruptcy proceedings.

[6]    Despite some confusion as to this in the papers, the 132 proceeding is founded on the June 2020 judgment debt of $6,811.50 and the 130 proceeding is founded on

1      Historically, an order stopping proceedings progressing any further — temporarily or permanently

— was referred to as a stay. In the Insolvency Act 2007 the term used is “halt”. I perceive them to mean the same thing, the latter term simply having a more modern flavour to it.

2      Anderson v DeMarco [2020] NZHC 1349.

3      Anderson v DeMarco [2020] NZHC 2979.

4      Anderson v DeMarco [2020] NZHC 3490.

the November 2020 and March 2021 judgments giving rise to a judgment debt of

$323,441.53.

[7]    Mr DeMarco appealed from Cooke J’s substantive judgment. He applied for a stay of execution of the judgment pending his appeal. In March 2021 Cooke J declined the application for a stay.5

[8]    On the papers it would appear that Mr DeMarco has applied for a halt of the 130 proceeding and, in relation to the 132 proceeding, merely given notice of his intention to oppose the application to adjudicate him bankrupt. Despite this the argument before me was advanced on the basis that Mr DeMarco was seeking an order halting both proceedings and opposing the making of the orders for adjudication in bankruptcy sought by Mr Anderson and Ms Carrasco, and I will deal with the case accordingly. I will address Mr DeMarco’s applications and return to Mr Anderson and Ms Carrasco’s applications should that be necessary.

[9]    Mr DeMarco’s notice of application dated 17 June 2021 does not refer to s 38 of the Insolvency Act. However, for reasons that will become clear, I set this out.

38       Court may halt application

(1)The court may at any time halt the creditor’s application for adjudication.

(2)The court may halt the application on the terms and conditions (if any), and for the period, that the court thinks appropriate.

[10]In his application Mr DeMarco relies on s 42 which provides:

42       Halt or refusal of application when judgment under appeal

(1)This section applies if the creditor’s application for adjudication relies on one of the following acts of bankruptcy:

(a)the debtor failed  to  comply  with  a  bankruptcy  notice  (see section 17):

(b)a judgment against the debtor for non-payment of trust money is not satisfied within 5 working days after the date of the judgment (see section 28).

5      Anderson v DeMarco [2021] NZHC 544.

(2)If the debtor has appealed against the judgment or order underlying the bankruptcy notice or the judgment for nonpayment of trust money, as the case may be, and the appeal is still to be decided, then the court may—

(a)halt the creditor’s application for adjudication; or

(b)refuse the application.

[11]   In support of his application, Mr DeMarco has sworn three affidavits. The first dated 17 June 2021 was filed and served with his application.   The second dated    21 June was headed “Special Affidavit of Eugene John DeMarco”. The  third dated  7 July 2021 was filed and served (electronically) late in the evening on the eve of the hearing.

[12]   When the matter was called Mr Tennet appeared for Mr DeMarco. He sought a short adjournment to discuss matters with Mr DeMarco. Following that he sought leave to withdraw on the basis that his instructions had been withdrawn, and explained that Mr DeMarco was proposing to argue the case himself (with the assistance of a McKenzie friend if the Court was prepared to allow that). I gave Mr Tennet leave to withdraw but asked him if, before doing so, he would assist the Court by providing his assessment of the primary points that could be advanced in support of Mr DeMarco’s applications and in opposition to the applications for adjudication. Mr Tennet agreed to assist in that way, and helpfully outlined the main arguments. I express the Court’s gratitude to him for this.

[13]   Having heard from Mr Tennet, I invited Mr DeMarco to address the Court on his own behalf, and agreed to his request to have a McKenzie friend.

[14]   Although I explained to Mr DeMarco more than once the essential issues for determination, and invited him to address himself to the merits, it became very clear that he was either unable or unwilling to do so. It is unnecessary to dwell on what  Mr DeMarco said to the Court. It is sufficient to say that he failed to focus his attention on anything of relevance.

[15]   Section 38 confers on the Court an unfettered discretion to halt proceedings at any time and on any terms. In Re Bank of New Zealand, ex parte Karoniadis,

Associate Judge Bell said that, the Legislature having conferred such a discretion, it would be wrong for the courts to fetter that by making hard and fast rules, adding that the discretion provided by s 38 is flexible.6

[16]   The learned authors of Brookers Insolvency Law and Practice in New Zealand refer to the leading cases concerning s 38 and its predecessor (s 26(7) of the Insolvency Act 1967). 7 It is difficult to draw any general principles from the cases as each focusses on the particular circumstances involved. However, the broad thrust of the cases appears to be that in the case of an application based on a judgment debt and the service of a bankruptcy notice, the Court will only halt proceedings under s 38 where:

(a)The judgment debtor can point to a particular course of action that he or she is taking or is proposing to take which if successful would have the effect of undermining the indebtedness upon which the proceedings are based;

(b)The Court is satisfied that the judgment debtor is bona fide in his or her intention;

(c)The Court is able to discern that there is some merit in the course of action;

(d)The judgment debtor has acted candidly by putting all relevant information before the Court; and

(e)The granting of a halt will not operate unjustly on the judgment creditor.

[17]   Section 42 of the Insolvency Act deals with situations in which the debtor has appealed against the judgment or order behind the bankruptcy notice.

[18]   This section too confers on the Court an unfettered discretion, and Associate Judge Bell’s observations in Re Bank of New Zealand apply with equal force.

6      Re Bank of New Zealand, ex parte Karoniadis [2013] NZHC 2865 at [11].

7      Brookers Insolvency Law & Practice (looseleaf ed, Thomson Reuters) at [IN38.01–2].

[19]   That was confirmed by Associate Judge Andrews in Mainzeal Property & Construction Ltd (in liq) v Yan where his Honour said:8

[13]      The Court’s discretion to grant a halt under s 42 is unfettered in the sense that the act does not prescribe relevant factors or the weight to be accorded to them. In Yeoh v Al Saffaf, this Court held the following factors may be relevant:

(a)The bona fides of the debtor in prosecuting the appeal;

(b)What stage the appeal has reached and whether there has been a delay in prosecuting the appeal;

(c)The merits of the appeal are generally not an appropriate matter for the Court to consider unless the Court is of the view that the appeal has absolutely no prospect of success;

(d)Whether the bankruptcy proceeding might render the appeal nugatory; and

(e)Whether the halt of the proceeding would unduly harm the creditors.

[14]      Those factors were followed in Re Pillay ex parte ANZ National Bank Ltd where Faire AJ noted that the power to halt under s 42 involves a discretion similar to the power to give interim relief pending an appeal under the Court of Appeal (Civil) Rules. His Honour noted other relevant factors include the effect on third parties, the novelty and importance of the question on appeal; the public interest in the proceedings; and the overall balance of convenience.

(footnotes omitted)

[20]   Where the course of action upon which the judgment debtor has embarked, or proposes to embark, is a challenge by way of an appeal to the underlying judgment, it appears to me that there is little — if any — practical difference between the application of ss 38 and 42 of the Insolvency Act, and whether an application is analysed through the lens of one section or the other I would respectfully endorse and adopt Associate Judge Andrews’ approach.

[21]   It is impossible in this case not to have serious reservations as to the bona fides of Mr DeMarco’s intention to prosecute an appeal or appeals that would threaten the judgment debts behind these proceedings. For a start, Mr DeMarco has not appealed from the June 2020 costs judgment. He did appeal from the November 2020 judgment.

8      Mainzeal Property & Construction Ltd (in liq) v Yan [2020] NZHC 1659 at [13]–[14].

However, it turns out that the appeal is no longer extant. No steps were taken for three months. Accordingly, in terms of r 43 of the Court of Appeal (Civil) Rules 2005, it was deemed abandoned. The Registrar of the Court of Appeal notified Mr DeMarco of this by notice dated 16 June 2021. Mr DeMarco has not made an application for an order reinstating his appeal. He tells me that he intends to do so, but that does not take matters very far. Any such application will face a high hurdle.9 Bona fides, then, is in issue.

[22]   It is unnecessary to address the issue of the stage that the appeal has reached, because, at this point, there is no appeal.

[23]   As  to  the  merits  of  any  appeal  that  might   emerge,  in  dealing   with   Mr DeMarco’s application for a stay of execution of his substantive judgment, Cooke J observed that he did not view the appeal as being a strong one.10 I agree. The case involved the orthodox application of contractual principles and turned on factual determinations. That is not a promising starting point for any appeal.

[24]   Whilst I accept the contention advanced  on  behalf  of  Mr  Anderson  and Ms Carrasco  by  Mr  Dalzell  that,  technically  at  least,  an  order  bankrupting    Mr DeMarco would not render any appeal nugatory,  the  reality  is  that  the  Official Assignee is unlikely to pursue an appeal in the present circumstances. I view this as a neutral factor.

[25]   In my view, the judgment creditors in this case have been required to wait long enough to recover their deposit, and it would be unjust to ask them to wait longer to see if Mr DeMarco can mount challenges to these two judgment debts.

[26]There appears to me to be other factors at play in this case too.

[27]   At no stage has Mr DeMarco disclosed his overall financial position so as to enable the Court to make any assessment of this. In his affidavit evidence he asserted that the judgment creditors’ positions were protected because they hold security over

9      See Siemer v Stiassny [2009] NZCA 624 at [25]–[26].

10     Anderson v DeMarco, above n 5, at [16].

a Corsair aircraft which he implied, or invited the Court to infer, had a value exceeding these judgment debts. It turns out that that is not correct. Whilst I am told that the judgment creditors have a charging order over some assets owned by Mr DeMarco, the Corsair aircraft is owned by a company (albeit a company, the shares in which are owned by Mr DeMarco). In any event, there is no current evidence as to the condition or value of the aircraft.

[28]   Mr DeMarco suggested in his first affidavit that the case was one of public importance. I do not see that at all. It is quintessentially a private dispute which, whilst no doubt of real significance for the parties, has no public component.

[29]   The underlying claim by Mr Anderson and Ms Carrasco was for a return of a deposit — their own money. Mr DeMarco might have bought this dispute to a very quick conclusion by accepting that the contract was not going to be settled and return the deposit.

[30]   In relation to the conduct of the litigation, it appears to me that Mr DeMarco has done everything within his power to thwart Mr Anderson and Ms Carrasco’s claim. The substantive case having been resolved in favour of Mr Anderson and Ms Carrasco, Mr DeMarco has ever since resisted payment of the judgment debts that are the subject of these proceedings. Whilst Mr DeMarco is of course entitled to defend his position, the substantive aspects of the case having been determined against him it is not obvious to me that he is entitled to any indulgences at this stage.

[31]   Finally, there is unchallenged evidence that Mr Anderson and Ms Carrasco would be in a position to repay anything paid to them should the outcome be reversed on appeal.

[32]   I am not persuaded that there is any proper foundation for making an order staying or halting these proceedings.

[33]That brings me back full circle to the judgment creditor’s applications.

[34]Sections 36 and 37 of the Insolvency Act provide:

36Court may adjudicate debtor bankrupt

The court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.

37Court may refuse adjudication

The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

(a)the applicant creditor has not established the requirements set out    in section 13; or

(b)the debtor is able to pay his or her debts; or

(c)it is just and equitable that the court does not make an order of adjudication; or

(d)for any other reason an order of adjudication should not be made.

[35]   Section 13 of the Insolvency Act sets out the pre-conditions to an adjudication order. These are that the judgment creditor is owed at least $1,000; that no more than three months prior to the commencement of proceedings by the judgment creditor the judgment debtor has committed an act of bankruptcy (invariably, as in the present case, the act of bankruptcy relied upon will be the failure on the part of judgment debtor to comply with a bankruptcy notice); that the debt is for an amount certain; and that it is payable immediately or at a future date. Here, it is common ground that the requirements of s 13 are met. Accordingly the judgment creditors have a prima facie entitlement to an adjudication order.

[36]   Mr DeMarco has asserted, both in his affidavit evidence and elsewhere, that he is able to pay his debts. However, as already said, he has not provided any financial evidence which would enable the Court to make that assessment. I am not prepared to accept that he is in a position to do so.

[37]   As to the issue of whether it would be just and equitable to make an order that is one which in my view involves the Court assessing the justice and equity of the position in an overall sense having regard to the interests of the judgment creditors as well as the judgment debtor. For all the reasons I have already canvassed I can see no basis upon which it can be seriously suggested that it is unjust or inequitable that the Court make an order adjudicating Mr DeMarco bankrupt.

[38]   Nor did Mr Tennet or Mr DeMarco suggest that there were any other reasons why an order of adjudication should not be made, and I can see none.

[39]   For those reasons, there will be an order adjudicating Eugene John DeMarco bankrupt in both of these proceedings. The judgment creditors will have their costs on a 2B basis, together with such disbursements as may be fixed by the Registrar. The order of adjudication will come into effect on the date and at the time entered on the cover sheet of this judgment.

Associate Judge Johnston

Solicitors:
Parker & Associates, Wellington for judgment creditors