ANZ Banking New Zealand Limited v Stevenson

[2018] NZHC 1709

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-000558

[2018] NZHC 1709

IN THE MATTER

of the Insolvency Act 2006

AND

IN THE MATTER

of the bankruptcy of JAMES CAMPBELL STEVENSON

BETWEEN

ANZ BANKING NEW ZEALAND LIMITED

Judgement Creditor

AND

JAMES CAMPBELL STEVENSON

Judgment Debtor

Hearing:	11 July 2018
Appearances:	J San Diego for Plaintiff Y Lee for Defendant
Judgment:	11 July 2018

ORAL JUDGMENT OF VENNING J

Solicitors:           Minter Ellisson Rudd Watts, Auckland

Doug Cowan, Auckland

ANZ BANKING NEW ZEALAND LTD v STEVENSON [2018] NZHC 1709 [11 July 2018]

[1]        On 23 February 2016 the ANZ Bank New Zealand Ltd (the Bank) obtained judgment by admission against James Stevenson for $260,000 together with costs and disbursements.

[2]        Mr Stevenson has not paid the debt and on 16 April 2018 the Bank served a bankruptcy notice on him.

[3]        Mr Stevenson has applied to set the bankruptcy notice aside. The matter was scheduled for hearing this morning. At the outset of the hearing Mr San Diego for Mr Stevenson advised the Court he had been instructed to seek an adjournment for two weeks to enable Mr Stevenson to make payment of the debt. Mr San Diego’s instructions are that Mr Stevenson is taking steps to arrange funding from alternative sources to pay the debt.

[4]        Given the history to this matter which I will refer to shortly, I declined the application for adjournment. The application was in all respects otherwise ready for hearing. Counsel had filed full submissions in advance of the hearing and Mr San Diego was in a position to address the Court in support of the application.

[5]        Mr Stevenson does not dispute the judgment which remains outstanding nor does he say he has a cross-claim against the Bank.

[6]        Instead Mr Stevenson seeks to have the bankruptcy notice issued against him set aside on the grounds that:

(a)he can pay the judgment debt and costs;

(b)he will be prejudiced if the bankruptcy notice is not set aside; and

(c)he says he has not committed an act of bankruptcy.

[7]        In his affidavit in support of the application Mr Stevenson explains that since April 2005 he has been the managing director of Verona Treasury Management Ltd (Verona). The judgment debt arose from Mr Stevenson’s guarantee of Verona’s borrowing from the Bank. Verona provides a number of financial services, including providing escrow or paymaster services to international clients on a confidential basis.

It receives and holds the funds before distributing them in accordance with appropriate and applicable laws and regulations. Verona is currently involved as paymaster in three transactions sourced or based in Zurich.

[8]        As at the date of swearing his affidavit in support of the application to set aside the bankruptcy notice on 30 April 2018 Mr Stevenson anticipated the transactions would settle within seven to 10 days and Verona would receive fees of approximately one per cent of a USD 30 million transaction which would enable the debt to be cleared. Mr Stevenson says that given time the company could pay the debt. On the basis of Mr Stevenson’s statement in the affidavit the transaction should have settled by 10 May. It has not settled and the debt has not been cleared. Counsel Mr San Diego advised his current instructions were that it is still expected the transactions will settle but that Mr Stevenson is also looking at alternative means of raising the money to pay the debt from an overseas source, a contact in Australia, or possibly other means will be used to raise the money, but the entry of judgment in counsel’s submission was making that more difficult and the issue of the bankruptcy notice compounded the difficulty.

[9]        On the first issue raised by Mr Stevenson, namely whether the debt can be paid, the evidence is overwhelmingly against Mr Stevenson. Mr Stevenson and Verona have had ample time to pay the debt but despite repeated assurances the debt would be paid have failed to do so. As noted the judgment was entered in February 2016. In his affidavit in opposition Mr Smith, the manager of recoveries division of the Bank has set out his dealings with Mr Stevenson. Prior to the entry of judgment Mr Stevenson failed to meet a number of repeated commitments to pay. In October 2017 even after the entry of judgment ANZ agreed to enter a settlement agreement with Mr Stevenson for a lesser sum of $137,000 provided the debt was paid within a certain time. ANZ even provided an extension of time for payment under that settlement agreement but Mr Stevenson failed to comply with his further assurances that payment would be forthcoming. As a result that settlement agreement was voided and ANZ has issued a bankruptcy notice based on the judgment sum, albeit that on the material before the Court the debt seems to exceed that.

[10]      The evidence satisfies the Court Mr Stevenson cannot pay the judgment debt and costs at the present time.

[11]      Nor can the ground that Mr Stevenson has not committed an act of bankruptcy succeed. He has failed to pay the judgment debt within 10 days of service of the bankruptcy notice. He has not raised any cross-claim against the Bank. There can be no suggestion that the judgment which was entered on the basis of an admission is in any way flawed. Prima facie Mr Stevenson has committed an act of bankruptcy.

[12]      That leaves the remaining ground to set aside the bankruptcy notice, which is that it should be set aside in the exercise of the Court’s inherent jurisdiction. Mr Stevenson raises two matters to invoke the inherent jurisdiction of the Court. First, he says he will be prejudiced if the notice is not set aside and second, in counsel’s written submissions, it is suggested that the Bank’s pursuit of the bankruptcy notice was an abuse of process. Mr San Diego submitted that where a creditor’s purpose in issuing a bankruptcy notice was to exert pressure on a judgment debtor to pay a debt then that was an abuse of process.

[13]      As Master Kennedy-Grant found in Re Wise Ex parte Benecke the Court retains an inherent jurisdiction to control an abuse of its process and in limited circumstances the Court will exercise the jurisdiction, even at this stage of insolvency proceedings, where it feels necessary to intervene to prevent injustice.1

[14]      However, as explained in a later decision of Associate Judge Abbott in Krukziener v Hanover Finance Ltd where a debtor cannot rely on the specific grounds to set aside the bankruptcy but rather seeks to have the Court exercise its inherent jurisdiction to set aside a bankruptcy notice on the grounds of potential injustice (but not impugning the underlying judgement debt) the debtor must show very special circumstances.2

[15]      The first point that Mr Stevenson relies on is that he has been prejudiced by the entry of the judgment and by the issue of the bankruptcy notice. Any prejudice is,

1      Re Wise Ex parte Benecke HC Auckland B227/95, 21 June 1995.

2      Krukziener v Hanover Finance Ltd HC Auckland CIV-2007-404-002896, 12 August 2008 at [36].

however, a consequence of his personal circumstances and his failure to meet his commercial obligations rather than the actions of the Bank. Those circumstances fall well short of invoking any inherent jurisdiction of the Court to prevent an injustice.

[16]      On the second point, namely the suggestion that the Bank was placing improper pressure on Mr Stevenson by the issue of the bankruptcy notice, Mr San Diego referred to two cases, in particular: Re a Debtor (No 757 of 1954), Ex parte The Debtor v FA Dumont Ltd and Slack v Bottoms English Solicitors.3 The cases referred to by counsel do not, on a careful reading of them, support the submission made. In Re a Debtor the debtor agreed to pay a debt, including costs, to the creditor. At that stage there was no mention of bankruptcy proceedings during the course of discussions but by end of the discussion the debtor was told the creditor intended to proceed to judgment. The creditor subsequently obtained judgment and, as the parties ultimately failed to reach agreement in regard to the amounts of instalments and times for payment, the creditor pursued a bankruptcy petition. The debtor applied to set aside the petition on the basis the creditor had been guilty of extortion in attempting to obtain from the debtor the full amount of costs which the creditor had incurred in obtaining the judgment. The Court rejected the argument noting:4

The so-called “rule” in bankruptcy is, in truth, no more than an application of a more general rule that court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court, and, therefore, disqualified from invoking the powers of the court by proceedings which he has abused.

[17]      The Court accepted there may be abuse if a threat has been made in order to obtain some payment or promise or some collateral advantage properly attributable to the use of the threat. In every case it will be a question of fact whether there has been extortion of that nature.

[18]      In Slack v Bottoms English Solicitors Mr Slack argued the judgment creditor was abusive in pursuing the bankruptcy proceedings. In the course of that judgment

3      Re a Debtor (No 757 of 1954), Ex parte The Debtor v FA Dumont Ltd [1955] Ch 600, [1955] 2 All ER 65 (CA); and Slack v Bottoms English Solicitors [2002] FCA 1445.

4      Re a Debtor (No 757 of 1954), Ex parte The Debtor v FA Dumont Ltd, above n 3, at 78.

the Court accepted the proposition from previous authorities that it has an inherent power to set aside a bankruptcy notice as an abuse of process if it is apparent that the purpose of the bankruptcy notice was to put pressure on a debtor to pay a debt rather than to invoke the Court’s jurisdiction in relation to insolvency.5

[19]      However the Court went on to cite with approval from the case of Killoran v Duncan:6

12.  Whilst there is no debate about the jurisdiction of the Court to set aside a bankruptcy notice as an abuse of process where it can be concluded that it was simply to put pressure on the debtor rather than to genuinely invoke the Court's jurisdiction, I am not satisfied that that is the position here. There is nothing to indicate that the respondent creditor does not genuinely intend to pursue the matter if there is default in complying with the notice. In my opinion, there is nothing special about abuse of process in this field, and, if a person wishes to resort to the jurisdiction of the Court for appropriate orders, then it will be an unusual case in which that will be prevented.

[20]      In the Slack case itself the Court observed that the judgment creditor’s statement to the debtor “we intend to proceed by way of a creditors’ petition in the event that payment is not made within the required time” was no doubt calculated to persuade the applicant to pay the debt the subject of the notice but that was also an express object of a bankruptcy notice.7 The Court rejected the argument that there was an abuse of process in those circumstances.

[21]      The issue is whether the issue of the bankruptcy notice can be said to be for an improper purpose, namely to put pressure on a debtor rather than a genuine attempt to invoke the Court’s jurisdiction.

[22]      In the present case on the information before the Court at present the evidence suggests that Mr Stevenson is insolvent. He is not in a position currently to pay the debt despite the significant passage of time since it became due and despite the numerous promises of payment that he has made. There is no evidence before the Court to suggest that the Bank does not intend to pursue Mr Stevenson to insolvency in the event he does not pay the bankruptcy notice. Indeed I understand from

5      Slack v Bottoms English Solicitors, above n 3, at [16], citing Re Sterling; Ex parte Esanda Pty Limited (1980) 44 FLR 125 and Re Lentini v CSR Limited (1991) 29 FCR 363.

6      Slack v Bottoms English Solicitors, above n 3, citing Killoran v Duncan [1999] FCA 1574 at [18].

7      Slack v Bottoms English Solicitors, above n 3 at [20].

everything that has been put before the Court by way of material and in submissions today that in the event this application is dismissed the Bank will proceed to a petition and that was its intention at the time it issued the bankruptcy notice. There is no evidence that the Bank acted improperly in issuing the bankruptcy notice.

[23]      There is nothing in Mr Smith’s affidavit or the evidence of Mr Stevenson to suggest the Bank is using the current process and notice for any improper purpose. As noted the evidence confirms that despite repeated promises to pay over a lengthy period of time Mr Stevenson has been unable to meet his debt commitments. There is no evidence before the Court of his solvency.

[24]      While it follows that I accept the Court has an inherent jurisdiction, and may exercise that inherent jurisdiction in special circumstances at this stage of the bankruptcy proceedings, the jurisdiction will be rarely used and only when the Court is satisfied that pursuing the notice is a clear abuse of process. The evidence falls well short of that in the present case.

Result/costs

[25]      The application to set aside the bankruptcy notice is dismissed. The judgment creditor is entitled to costs. The judgment creditor is to have costs on a 2B basis together with disbursements as fixed.

Venning J