Animal Health Board Incorporated v Churton HC Wanganui CIV-2011-483-8

[2011] NZHC 738

IN THE HIGH COURT OF NEW ZEALAND WANGANUI REGISTRY

CIV-2011-483-8

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of DAVID WAYNE CHURTON

BETWEEN  ANIMAL HEALTH BOARD INCORPORATED

Judgment Creditor

ANDDAVID WAYNE CHURTON Judgment Debtor

Hearing:         15 June 2011

Counsel:         J. Unsworth - Counsel for Judgment Creditor

G. Paine - Counsel for Judgment Debtor

Judgment:      15 June 2011

REASONS FOR DECISION OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:           The Law Store, Solicitors, PO Box 50-734, Porirua City

Stephen Ross & Associates, Solicitors, PO Box 680, Wanganui

ANIMAL HEALTH BOARD INCORPORATED V DAVID WAYNE CHURTON HC WANG CIV-2011-483-8

15 June 2011

Introduction

[1]      Before the Court today was an application by the judgment debtor, Mr David

Wayne Churton, seeking an order to set-aside a Bankruptcy Notice dated 26 January

2011 issued against him by the judgment creditor.

[2]      That application was opposed by the judgment creditor, Animal Health Board

Inc.

[3]      After the matter had come on for hearing before me earlier today, I gave a decision dismissing the application and made certain orders as follows.

(a)      The application by the judgment debtor, David Wayne Churton, to set-aside the Bankruptcy Notice issued against him by the judgment creditor is dismissed.

(b)An order is made that the judgment debtor has until 22 June 2011 to comply with the Bankruptcy Notice.

(c)       Detailed reasons for this decision are to follow.

(d)The judgment creditor having succeeded in opposing the application costs  are  awarded  to  the  judgment  creditor  against  the  judgment debtor on a Category 2B basis together with disbursements as fixed by the Registrar.

[4]      I now set out my detailed reasons for that decision.

Background Facts

[5]      In  2006-2007  the judgment  creditor,  in  exercise of its  powers under  the Biosecurity Act 1993, carried out operations to destroy animals on a farm property which it believed, on reasonable grounds harboured bovine tuberculosis (the TB operations).

[6]      The cost of those operations was $90,563.06.  That cost was invoiced to the judgment debtor in 2007, on the basis that he was the owner of the animals or in control of them or the occupier of the farm on which they were kept.

[7]      Then, about 5 May 2008, the judgment debtor himself issued proceedings against the judgment creditor in the District Court at Wanganui (CIV-2008-083-166). The judgment debtor’s cause of action in these proceedings was a claim for the unlawful destruction or poisoning of what he described as my (“the plaintiff’s”) cattle for which he sought damages of $178,600.00.

[8]      On 4 June 2008 the judgment creditor filed in the District Court a statement of defence and counterclaim and in the latter sought judgment for the cost of the TB operations of $90,563.06 and interest and costs.

[9]      Later in 2008, the judgment debtor filed in the District Court an amended statement  of  defence  to  the  counterclaim  in  which  he  admitted,  first,  that  the judgment creditor had purported to act pursuant to the Biosecurity Act, (see paras 5,

11, 13, 15 and 16) and secondly, that the animals that had been destroyed were the

“the property of the plaintiff (the judgment debtor)”, (see para 10).

[10]     On 26 January 2010 the District Court hearing of that proceeding took place. As there was no appearance for or by the judgment debtor, the Court struck out his claim  and  entered  judgment  for  the  judgment  creditor  on  its  counterclaim  for

$90,563.06 plus interest of $20,534.44 and costs and disbursements of $11,150.00.

[11]     Then, on 17 March 2010 the judgment debtor applied to the District Court to set aside that judgment.  The first call of that matter was on 30 March 2010.  The application was then set down for hearing on 7 May 2010.

[12]     On  6  May  2010  the  judgment  debtor  sought  an  adjournment  of  his application to set aside the judgment on the basis he had only just retained counsel. Following a teleconference in the District Court that same day an adjournment was granted on the condition that the judgment debtor provide security for costs by 21

May 2010.

[13]     At the rescheduled hearing in the District Court on 23 July 2010 the judgment debtor however had not provided security for costs.  The Court then made an unless order that by 4.00 pm on 30 July 2010 the judgment debtor had to:

1.        give  security  for  costs  of  $5,000.00  to  the  satisfaction  of  the

Registrar; and

2.        pay $250.00 costs to the judgment creditor’s solicitor;

and failing that, his application to set aside the earlier judgment was to be struck out.

[14]     The judgment debtor did not comply with the unless order so the application to set-aside the judgment was struck out and on 7 September 2010 Judge Tuohy in the District Court ordered the judgment debtor to pay the judgment creditor costs on a 2B basis.

[15]     Then, on the application of the judgment creditor, around 26 January 2011 this Court issued the Bankruptcy Notice in question for the sum of $124,325.50 representing the District Court judgment against the judgment debtor.

[16]     That Bankruptcy Notice was served on the judgment debtor and on 28 March

2011 he applied to set it aside alleging for the first time that he was not the owner of the cattle which had been destroyed.

[17]     On  9  June  2011  Mr  Paine,  counsel  for  the  judgment  debtor  filed  a memorandum in this Court annexing an (undated) Interlocutory Application to the District Court to Set Aside the earlier Judgment with an affidavit sworn 8 June 2011 by the judgment debtor.  Before me today, Mr Paine, confirmed that this application was filed in the District Court around 8 June 2011.

Parties’ Arguments and My Decision

[18]     In his application before the Court the judgment debtor generally relies on s

17 Insolvency Act 2006, and contends also that there has been an abuse of process

here that justifies the Court in applying its inherent jurisdiction to set-aside the

Bankruptcy Notice. As to s 17 Insolvency Act 2006, it relevantly provides:

17       Failure to comply with bankruptcy notice

(1)        A debtor commits an act of bankruptcy if –

(a)        a creditor has obtained a final judgment or a final order against the debtor for any amount; and

(b)        execution of the judgment or order has not been halted by a Court; and

(c)         the debtor has been served with a Bankruptcy Notice; and

(d)        the  debtor  has  not,  within the  time  limit  specified in subsection (4), -

(i)          complied with the requirements of the notice; or

(ii)         satisfied  the      Court  that  he  or  she  has  a crossclaim against the creditor.

(7)       In subsection (1)(defendant)(ii), cross claim means a counterclaim, set-off, or cross demand that –

(a)       is  equal to,  or  greater than,  the  judgment debt or  the amount that the debtor has been ordered to pay; and

(b)       the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.”

(emphasis added)

[19]     Generally, to succeed under s 17 in an application such as the present one, the judgment debtor must satisfy the Court that he has a genuine triable counterclaim, set-off, or cross demand; and that it is such that he could not have set it up in the action in which the relevant judgment was obtained:  Clark v UDC Finance Limited [1985] 2 NZLR 636, 637.

[20]     This Court’s inherent jurisdiction to prevent abuse of process is not barred by s 17 Insolvency Act 2006.   This is clear from decisions such as  Re: Wise HC, Auckland, 21 June 1995, Master Kennedy-Grant, B.227/95; B228/95.  In this case at p 6 Master Kennedy-Grant concluded:

“(a)       I do have jurisdiction to grant relief to the debtors

“(b)       The jurisdiction is the inherent jurisdiction of the Court to control the abuse of its process;

“(c)       The grounds on which the jurisdiction may be exercised are:

“(i)       Procedural defect in the obtaining of the judgment on which the bankruptcy notice is based; and/or

“(ii)       The existence of arguable grounds of defence to the claim for which judgment was given;

“(d)     The  grounds  on  which  the  jurisdiction  may  be  exercised  may  extend beyond those stated in (d) to  any ground  on which the  Court feels it necessary to intervene to prevent injustice but I make no finding on that point in this judgment;

“(e)      The correct procedure for invoking the inherent jurisdiction of the Court is not the filing of an affidavit under rule 41 but the filing of an interlocutory application to set aside the bankruptcy notice on one of the grounds stated in (c) above or, possibly, the broader ground stated in (d) above[.]”

Counterclaim, Set-Off or Cross Demand

[21]     In the present case, I say at the outset that I am satisfied, in terms of s

17(1)(d)(ii) Insolvency Act 2006, that the judgment debtor has no genuine counterclaim, set-off or cross demand that it could be said he was unable to use as a defence in the action in which the relevant judgment was given.

[22]     His present claim, however framed, is that he did not own the cattle (despite suing the judgment creditor for $178,600.00 for their unlawful deaths, claiming they were his) and therefore he cannot be  liable for the costs of their destruction.  He says now for the first time that Churton Farms Limited (in liquidation) owned the cattle and thus he is not the debtor.

[23]     This was clearly a “claim”/ “defence” that he could have raised in the District Court action in which the judgment creditor obtained its judgment.  It was available then and not run.  Accordingly, in my view, there is a reasonable argument that it cannot be relied upon now (Davidson, ex parte ASB Bank Ltd – High Court, Christchurch, B743/98, 24 March 1999, Master Venning).   And certainly, as the judgment debtor’s counsel Mr Paine before me clearly acknowledged, it is simply impossible to reconcile the position now advanced by the judgment debtor that the cattle in question were not his but belonged to a Churton company, with his repeated claims earlier that the cattle belonged to him and he was suing personally for their loss.

[24]     Finally, and in any event, this contention is not a counterclaim, set-off or cross-demand.  It is at best a defence.  This aspect and s 17(1)(d)(ii) does not assist the judgment debtor here.

Abuse of Process

[25]     The next question to be considered is whether the judgment debtor can argue that the circumstance in which the judgment creditor obtained its judgment in the District Court is an abuse of process?   In my view, given the many opportunities afforded the judgment debtor by the District Court which I have outlined at [7] to [14] above, the answer must be no.

[26]     Next, can the judgment debtor reasonably suggest here that arguable grounds of defence exist to warrant time being afforded him to again attempt to set-aside the District Court judgment?

[27]     As I see the position, there are three difficult hurdles to the judgment debtor in that scenario:

(a)      The first is the possible argument that the District Court is functus officio here.  The judgment debtor’s original application to set aside the judgment was  struck out after the making of an unless  order which was not complied with.   It is arguable in my view that the Court cannot deal with the recently filed application to set aside.  The judgment debtor’s only remedy is an appeal and it would appear he is clearly out of time.

(b)Despite notice of the final judgment, following the strike out of the original application to set aside, the judgment debtor has taken no steps to appeal the making of the unless order or the striking out (although it may well be doubted whether an appeal lies against the strike out itself).

(c)      And finally, and quite telling in my judgment, the claimed defence of “not my cattle therefore not my debt” it would seem is not available to the judgment debtor because of the provisions of sections 121 and

128 of the Biosecurity Act 1993 which state:

Section 121 – Power to examine organisms

(2)       Every owner or person in control of any organism, and every occupier of a place in which any organism is present, shall, whenever required by an inspector or authorised person by written notice to do so, submit the organism specified in the notice for the purposes of subsection (1) of this section.

Section 128 – Power to act on default

(1)        Where a notice given to a person under this Act lawfully directing or requiring that person to carry out specified works or measures, or take some other specified action, has not been complied with on the expiry of the time allowed by the notice for compliance, or, if in no such time was specified in the notice, within a reasonable time, a chief technical officer, [a principal officer] or management agency may cause such works or measures to be carried out or action to be taken as is reasonably necessary and appropriate for achieving the purposes of the notice.

(3)       The chief technical officer, [a principal officer] or management agency may recover the costs and expenses reasonably incurred under this section as a debt due from the person to whom the notice was given.

[28]     It is clear to me from all the material before the Court that the judgment debtor  was  the owner  of and/or  in  control  of  the cattle in  question  (indeed  he acknowledged as much on several occasions when it suited him, only to endeavour to recant recently), was given the notice to carry out specified measures with which he did not comply, and so the judgment creditor was entitled to cause such measures to be taken and to collect the costs of those actions from the judgment debtor as it did.

[29]     I am satisfied that the judgment debtor was liable in law so has no substantial ground of defence on the Russell v Cox [1983] NZLR 654 (CA 1993) test.

[30]     It follows that the judgment debtor has been unable to point to any abuse of process here that would justify the Court applying its inherent jurisdiction to set aside the Bankruptcy Notice.

Conclusion

[31]     For all the reasons outlined above the application by the judgment debtor to set aside the Bankruptcy Notice in question fails.

[32]     The orders noted at para [3] above are confirmed.

‘Associate Judge D.I. Gendall’