ANZ Bank of New Zealand Limited v Hart

[2012] NZHC 3464

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-4929 [2012] NZHC 3464

IN THE MATTER OF     of the Insolvency Act 2006

BETWEEN  ANZ BANK OF NEW ZEALAND LIMITED

Judgment Creditor

ANDBARRY JOHN HART Judgment Debtor

Hearing:         14 December 2012

Counsel:         L O'Gorman and A Williams for Judgment Creditor

J N Bioletti for Judgment Debtor

Judgment:      17 December 2012

ORAL JUDGMENT OF ASSOCIATE JUDGE SARGISSON

Solicitors:

Buddle Findlay, PO Box 1433, Shortland Street, Auckland
Jeremy Bioletti PO Box 205546, Auckland Central

ANZ BANK OF NEW ZEALAND LIMITED V HART HC AK CIV-2012-404-4929 [17 December 2012]

Introduction

[1]      In this proceeding, the judgment creditor, the ANZ Bank of New Zealand Ltd, seeks an order adjudicating the judgment debtor, Barry John Hart, bankrupt and an order for costs.

[2]      Mr Hart seeks an adjournment, by way of a temporary halt to the proceeding, which is opposed by the bank.

The application for adjudication

[3]      In  the  application  for  adjudication  the  bank  relies  first  on  an  act  of bankruptcy committed upon Mr Hart’s failure to comply with the bankruptcy notice served on him in respect of an order of costs for $34,689.52 that the bank received on 13 July 2012 at an interlocutory phase of a proceeding brought by Mr Hart against the bank in CIV-202-414-2583.[1]

[1] Hart v ANZ National Bank Limited HC Auckland CIV-2012-404-2583. The award was made when Mr Hart and others decided not to proceed with their application for an interim injunction to stop the bank’s mortgagee sale of various properties and the application was dismissed.

[4]      Secondly, the application relies on a later judgment debt of $20,543,951.92 (due under various loan facilities) awarded  by summary judgment in that  same proceeding by Associate Judge Abbott on 29 October 2012 on the bank’s counterclaim.

[5]      Thirdly, the application relies on further costs awards, also made in that proceeding, against Mr Hart on 6 September 2012 for $22,776.30 and $16,456.10 and an entitlement to interest that continues to accrue on the above sums under the

Judicature Act 1908.

Application to set aside bankruptcy notice

[6]      Mr Hart had sought to have the bankruptcy notice set aside but Associate Judge Abbott dismissed the application in his judgment of 29 October, noting that it was common ground that the application “will fail if the Court finds that Mr Hart does not have an arguable defence to the summary judgment application”.[2]    Given the finding on the bank’s summary judgment application, Mr Hart’s application to set aside was inevitably declined.

[2] Hart v ANZ National Bank [2012] NZHC 2839 at [8].

[7]      It is important to refer to the grounds on which Mr Hart had relied.  These were essentially twofold:

a)       that the bankruptcy notice relates to a cost order on an interlocutory application for an interim injunction;[3] and

b)that he has a reasonably arguable case on the substantive claim for damages in the proceeding in which the interim injunction application was made arising out of an alleged breach of s 176 of the Property Law Act 1976 that gives him an equitable set off.  (The claim under s

176 alleges that the bank has exercised its powers of sale in respect of mortgaged properties in a manner that has failed to obtain an appropriate sale price for them.  Further, if successful, the damages award would be equal to or greater than the amount claimed by the bank and will give rise to a setoff, which Mr Hart could not put forward in the proceeding in which the order for costs was made).

[3] Not surprisingly, this ground was not pursued. The order was not appealed and is beyond challenge. It is a final order in respect of the injunction matters dealt with.

[8]      The second ground re-surfaces in the grounds of the appeal that Mr Hart was

brought against Judge Abbott’s decision.

Are there grounds for adjudication?  If the answer is yes are there grounds for an adjournment?

[9]      There  is  no  dispute  that  the  technical  requirements  for  an  order  for adjudication, as set out in s 13 Insolvency Act 2006, are met. Mr Hart has not taken any formal steps in opposition to the application for adjudication. Mr Hart does not claim that there has been any stay of the order for costs made on 13 July 2012, express or implied.

[10]     Nor does Mr Hart dispute that he was indebted to the bank for in excess of

$20 million on 29 October 2012 when summary judgment was entered for that sum. He says the sum is now reduced to $17.5 million as the result of the bank’s sale of another of the properties in which he has an interest.

[11]     However, Mr Hart relies on the appeal against the judgment of 29 October to oppose adjudication.  Relevantly, he seeks by his appeal to show that:

c)       he has an arguable claim for damages that should have been treated as a defence to summary judgment; and

d)the claim would entitle him to have the bankruptcy notice set aside on the basis that he has a good arguable case that he will recover enough by way of damages to clear the costs award as well as the sum owing under the loan facilities.[4]

[4] The appeal advances grounds relating to the alleged set off and that the Judge erred by omitting to set aside the bankruptcy notice.

[12]     Mr Hart also relies on an application that he has made to the Court of Appeal for a stay of execution of the judgment of 29 October until the appeal has been heard and determined.[5]    A temporary stay was granted by Lang J in this court on 28

November 2012 to allow Mr Hart to make application to the Court of Appeal, but it

has expired.

[5] Mr Hart was granted a temporary stay of execution in this court on terms.

[13]     The  appeal  does  not  operate  as  a  stay  and  materially,  Mr  Hart  has  not obtained an application for a temporary halt of the adjudication application as he might have under s 38 of the Insolvency Act.[6]   Nor has he filed such an application. This, despite his being served with the application on 20 November 2012. [7]

[6] Section 38 affords the court a general power to order a halt to adjudication proceedings.

[7] The bank’s application for an order for adjudication was served on Mr Hart on 20 November 2012 when he was given notice of the hearing date of 13 December 2012. The summons advised that:

If you intend to oppose the making of an order adjudicating you bankrupt you must, by 1 pm on the last working day before the hearing date, file a notice of opposition in Form (B6, together with an affidavit in support of the opposition, and serve a copy of those documents on the applicant creditor.

[14]     There are therefore grounds for an order of adjudication.

[15]     However, Mr Hart has made an oral application for an adjournment on his behalf.  Mr Bioletti essentially submits that:

a)       Mr Hart should at least be given the opportunity to show that his grounds of appeal have substance; and

b)if  he  is  successful  in  that  endeavour,  he  will  have  a  reasonably arguable case for damages to take to trial.  He will have established that the summary judgment should be overturned and the bankruptcy notice be set aside.

[16]     I am not satisfied that it is appropriate to grant an adjournment on an oral application which would continue until the outcome of the Court of Appeal hearing.[8]

[8] The stay application is to be heard together with the appeal on 19 March 2013.

[17]     My reasons are these:

(a)       the application is strongly opposed.

(b)the appropriate course would have been to make a formal application for a temporary halt to the bankruptcy proceeding.  That is something

Lang J averted to in his decision on 28 November 2012 granting temporary stay of execution in the summary judgment proceeding;

e)       Mr Hart has been made aware of the need to make application for a halt to the adjudication application.   It was clear that a “halt” order was necessary as well as applying for a stay in the Court of Appeal.

[18]     The only issue that remains is whether I should grant an adjournment to allow time for Mr Hart to make a formal application for a temporary halt.

[19]     I agree with Ms O’Gorman that would be inappropriate.    My reasons are

these:

(a)      There is no challenge to the foundation order on which the bankruptcy notice is based.  It is beyond challenge.  Nor is there a challenge to the debt under the loan facilities, except by way of the claimed set off raised in the summary judgment proceeding;

(b)It is clear that on or by 13 July when the costs order was made the bank had entered into agreements for sale.[9]   This is not a case where Mr Hart could not have raised his damages claim in an amended pleading before the costs order was made.  Had he done so it could have been relied on as a defence to the bank’s claim for costs.[10]

[9] The agreements for sale and purchase were entered into several weeks beforehand.

[10] The damages claim was not pursued until Mr Hart’s amended statement of claim was filed on 19

September 2012 when his application to set aside the bankruptcy notice (served on 5 September 2012)

was also filed. The damages claim relies essentially on the same facts as the application for injunction.

(c)      Further, the claim to a set off relies not on the evidence put in the summary  judgment  proceeding  but  on  new  evidence  yet  to  be gathered.  It is anticipated, Mr Bioletti submits, that the evidence will show that the bank sold the mortgaged properties (referred to as the

farming interests) of Mr Hart and his associates at a gross undervalue

such  that  an  inference  can  be  drawn  that  the  sale  process  was seriously flawed and reasonable steps were not taken to achieve a proper price.

f)        As Ms O’Gorman points out, on the valuation evidence that Mr Hart put to the Court (that is the valuation evidence that was current), even on a most favourable view there will still be a shortfall of some millions and the issue, for Mr Hart, is at best one of quantum.

[20]     In the circumstances it is difficult to see any basis on which the bankruptcy notice could be set aside on appeal or any proper basis on which to grant an adjournment or to defer an order of adjudication.

[21]     It is clear that there has been an act of bankruptcy and that the bank is prima facie entitled to its order of adjudication.  Mr Hart bears the onus of convincing the Court that an order for adjudication should not be made pending the outcome of his appeal and the proceeding he wishes to pursue if the appeal is successful.

[22]     This is not a case where I can be confident that in the short term Mr Hart has any reasonable chance of success and in that case it would be unfair that the bank should be expected to delay its application.

[23]     There is no indication of Mr Hart’s current asset and liability position.  It is plain  that  Mr  Hart  was  not  in  a  position  to  pay the  costs  order  on  which  the bankruptcy notice was based. He has been unable to meet the award of costs or the debt owing under the loan facilities.  His only hope is that he will eventually have a successful outcome on a damages claim which he is not presently able to bring and will not be able to bring unless the Court of Appeal allows his appeal.  I balance that with the public interest in avoiding significant delays in bringing his affairs under the control of the Official Assignee. That public interest outweighs his private interest.

[24]     When I balance the interests of Mr Hart with the other factors I have referred to, I am not satisfied that it is appropriate to grant the adjournment.  If Mr Hart has a

claim for breach of the mortgagee’s duty then he can pursue the claim with the consent of the Official Assignee or leave of the court.

[25]     The adjournment application is declined.

Associate Judge Sargisson