ASB Bank Limited v Dye

[2012] NZHC 647

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-3255 [2012] NZHC 647

IN THE MATTER OF     of the Insolvency Act 2006

AND IN THE MATTER OF the bankrupty of RD Dye

BETWEEN  ASB BANK LIMITED Judgment Creditor

ANDRUSSELL DESMOND DYE Judgment Debtor

Hearing:         28 March 2012

Counsel:         ZG Kennedy and NA Chamberlain for judgment creditor

PF Chambers for judgment debtor

Judgment:      4 April 2012

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for adjudication order]

Solicitors:           MinterEllisonRuddWatts, PO Box 3798

Mark Harrison & Associates, PO Box 162, Waimauku

ASB BANK LIMITED V DYE HC AK CIV 2011-404-3255 [4 April 2012]

[1]      The judgment creditor applies for an order adjudicating Russell Desmond

Dye a bankrupt.

[2]      The judgment creditor obtained judgment against the judgment debtor in the High Court at Auckland on 10 May 2011 for $1,698,222.96 inclusive of interest and costs.

[3]      The judgment creditor applied for the issue of a bankruptcy notice.   The bankruptcy notice was duly issued and served on the judgment debtor on 8 July

2011.   The judgment debtor made application to set aside the bankruptcy notice. That  application  was  determined  by  Venning J  in  a  judgment  delivered  on

18 October 2011.1     The application was dismissed.   His Honour, however, made

reference to the judgment debtor’s right to pursue any cross-claim he wished to pursue against the judgment creditor.  His Honour observed that could only be done by the issue of fresh proceedings.

[4]      The judgment debtor did not comply with the bankruptcy notice and thereby committed an act of bankruptcy.

[5]      The  judgment  creditor  filed  this  application  on  26 October  2011.    The jurisdictional requirements that must be met before an order of adjudication is made are contained in ss 13 and 36 of the Insolvency Act 2006. Section 13 provides:

13       When creditor may apply for debtor's adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if—

(a)       the  debtor  owes  the  creditor  $1,000  or  more  or,  if  2  or  more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)       the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)       the debt is a certain amount; and

(d)       the debt is payable either immediately or at a date in the future that is certain.

1   Re Dye, ex parte ASB Bank Ltd HC Auckland CIV-2011-404-3255, 18 October 2011.

Section 36 provides:

36.      Court 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.

[6]      The jurisdictional requirements are met in this case.

[7]      I must now consider s 37 of the Insolvency Act 2006.   Section 37 provides:

37.      Court 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.

[8]      The judgment debtor has filed a notice of intention to oppose the application for an order of adjudication. The grounds advanced in opposition are set out as:

(a)       I have filed a statement of claim against the judgment debtor, the content of which identify grounds for claim and amounts in excess of  the  creditor’s  judgment  debt  that  forms  the  basis  for  its Bankruptcy Notice against me and its application for an adjudication order;

(b)       This Honourable Court, by way of a decision by His Honour, Justice Venning, in this proceeding confirmed, my right to file proceeding for that claim;

(c)       Until my claim against the judgment creditor has been determined, it is just and equitable that the Court either halt, stay or refuse to enter an adjudication order against me.

[9]      The judgment debtor’s notice advises that he relies on ss 37, 38 and 43 of the

Insolvency Act 2006.  Section 38 provides:

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.

Section 43 provides:

43       Court may halt application while underlying debt determined

(1)       This section applies if the debtor appears in opposition to a creditor's application and the debtor says either—

(a)      that he or she does not owe a debt to the creditor; or

(b)      that he or she does owe a debt to the creditor, but the debt is less than $1,000.

(2)       The  Court  may,  instead  of  refusing  the  application,  halt  the application so that the question of whether the debt is owed, or how much of the debt is owed, can be resolved at a trial.

(3)       As a condition of halting the application, the Court may require the debtor to give security to the creditor for any debt that may be established as owing by the debtor to the creditor, and for the costs of establishing the debt.

[10]     The judgment debtor placed before Venning J a draft counterclaim against the judgment creditor. Venning J summarised the counterclaim as follows:2

[15]     Mr Dye has filed an affidavit in support of his application.  He has annexed a proposed draft statement of defence and counterclaim against ASB.  In that draft claim Mr Dye pleads that, in return for guaranteeing Mr Stevens borrowing, he was to receive a 50 per cent stake in the development of the property at Stanmore Bay either by way of his shareholding in Frontier, personally or both.   Mr Dye pleads that in breach of its obligations to the principal debtor, ASB sold the Stanmore Bay property for $2,607,000.00 when it had previously  been  valued  at  $4,150,000.00  and,  if  further developments  were  carried  out,  would  have  had  a  value  of

$5,400,000.

[16]      Mr  Dye  pleads  that  ASB  has  either  deliberately  or  negligently caused him economic harm or loss to the value of 50 per cent of the difference between the sale price achieved by ASB and the market value of the property fully developed.   He calculates his loss at

$1,396,500.00 as follows:

2   Ibid, at [15] and [16].

Valuation of the property “as is”  $4,150,000

Total development value of the property         $5,400,000

Less sale price achieved by ASB  $2,607,000

A difference of:  $2,793.000

Mr Dye’s 50 per cent interest  $1,396,500.

[11]     His Honour referred to an additional claim made by Mr Dye as follows:3

[17]      In   addition   to   the   above   cross   claim,   during   submissions Mr Chambers suggested that Mr Dye also wished to rely on claims that Mr Stevens had raised against ASB arising from its breach of collateral contracts Mr Stevens had described in his proposed statement   of   defence   to   the   summary   judgment   application. Mr Chambers identified those proposed claims by Mr Stevens as:

a)breach of a collateral contract that, in return for Mr Stevens making specific payments to the loan and overdraft facility, the ASB would in return use moneys to reduce the loan facility and would extend the term of the loan; and

b)breach  of  a  second  collateral  agreement  that  Mr  Stevens would attempt to obtain $800,000 alternative funding from Westpac which would be used to reduce the term loan owing by Mr Stevens to ASB and the term loan facility would be extended accordingly.

[12]     His Honour disposed of the additional cross claim as follows:4

[18]      The short answer to the proposed defences of Mr Stevens may well lie in the general terms of agreement completed by the borrowers:

17.1     Set-off:     You irrevocably authorise us to apply (without prior notice or demand) any credit balance (whether or not due and payable)  to  which  you  are  entitled  on  any  account  (in  any currency) and at any of our offices, in or towards satisfaction of any indebtedness then due and payable by you to us but unpaid.

And:

23.4     Amendments:       Except as otherwise agreed in these General Terms, no amendment to any Document will be effective unless it is in writing signed by all the parties to that Document.

[19]     Mr Chambers was not able to point to any written agreement to support Mr Stevens alleged variation of the terms of the loan documents.

3 Ibid, at [17].

4   Ibid, at [18] and [19].

[20]     However, in any event Mr Chambers was not able to identify how, even if there were such agreements between Mr Stevens and ASB, (and they were breached) that could lead to any cross claim by Mr Dye against ASB.   Further, given that the guarantee completed by Mr Dye records that he is a principal debtor and not a surety:

3.     NATURE   OF   GUARANTEE   AND   INDEMNITY OBLIGATIONS

3.1       Liability as Sole Principal Debtor:  As between you and us (but without affecting the obligations of the Customer) you are liable under this Deed as a sole and principal debtor and not as a surety.

there is no basis upon which, even if Mr Stevens had such defences, that those defences would be available to Mr Dye.  Mr Dye does not suggest that he was a party to any such agreements.

[13]     His Honour then returned to the counterclaim itself and said:5

[21]     From Mr Dye’s point of view, the high point of any cross claim he may have against ASB is that it sold the mortgage security at an under value.

[22]      There  are  significant  difficulties  for  Mr  Dye  with  that  proposed claim.

His Honour concluded that the Bank had undertaken extensive marketing of the property and, as a result, Mr Dye was not able to satisfy the court that he had a genuine and triable cross-claim in respect of this matter.  His Honour also found that the amount of the cross-claim did not exceed the judgment.  He also found that the counterclaim could have been raised in the summary judgment proceeding and therefore, on that basis, its existence would not support the setting aside of the bankruptcy notice.

[14]     The result was that his Honour determined there was no basis for setting aside the bankruptcy notice.  He went on, however, to observe that if Mr Dye wished to pursue a claim against the judgment creditor he would have to do so by the issue of separate proceedings.6

[15]     On 29 November 2011 the judgment debtor filed a statement of claim and notice of proceeding in CIV-2011-404-7679.  That claim is advanced as the principal

justification for not adjudicating Mr Dye a bankrupt.  The proceeding was served on

5   Ibid, at [21] and [22].

6 Ibid, at [47].

the judgment creditor on 30 November 2011.  The new claim essentially repeats the counterclaim. The first cause of action essentially repeats the claim that was made in reliance on Mr Stevens’ claim and is the additional claim referred to by Venning J. The second cause of action essentially repeats the counterclaim that was analysed by Venning J.

[16]     The judgment debtor’s case is essentially that the court should either refuse to exercise its discretion to adjudicate or, alternatively, halt the proceeding so that the claim that Mr Dye has now filed against the judgment creditor can be determined by this court before any further orders are made under the Insolvency Act.

[17]     The circumstances that I have outlined and the grounds that are advanced by the judgment debtor need to be considered in the background context.

[18]     Mr Gavin Stevens and Frontier Properties Ltd obtained lending from the judgment creditor in the sum of $3,384,000 to purchase a property at 156 Brightside Road, Stanmore Bay, Auckland in May 2007.   In September 2007 the judgment creditor provided further financial advances to Mr Stevens personally in the sum of

$435,000.  On 1 April 2008 the personal loan to Mr Stevens and the advance for the purchase of 156 Brightside Road both expired.  Both were in default and had sums owing in excess of the amounts that were borrowed due to ongoing interest being capitalised.

[19]     Mr Stevens approached the judgment creditor for additional funding.   That was declined by the judgment creditor in July 2008 because of its current exposure. The judgment creditor advised Mr Stevens that he would need to sell some property in order to raise further funding.

[20]     On 14 August 2008 the judgment creditor, as lender, Frontier Properties Ltd and  Mr Stevens,  as  borrowers,  and  Mr Dye  as  guarantor  entered  into  a  facility agreement under which two new facilities were made available to Frontier Properties Ltd  and  Mr Stevens  via  a  revolving  credit  facility  and  a  term  loan.    Both  the revolving credit and term loan facilities were secured by a property at Kumeu, the Stanmore Bay property, an all-obligations mortgage over a property on Sunnyside

Road, Coatesville, Auckland and  an  all-obligations mortgage over a property at

161 Maungatawhiri Road, Raglan.  In addition, an unlimited guarantee was required from the judgment debtor and a limited guarantee from Mr Stevens.

[21]     On 10 September 2008 the judgment creditor was informed by Mr Stevens that he had effected a sale of the property at Kumeu for $925,000.   Despite the security Mr Stevens had apparently spent some of the deposit received.  Discussions took place between the judgment creditor and Mr Stevens regarding the distribution of the sale proceeds from the Kumeu property.  The judgment creditor says it was concerned at the level of debt given that its security position had been reduced following the sale of the Kumeu property.

[22]     On 12 September 2008 Mr Hunwick of the judgment creditor met Mr Stevens to discuss several alternative approaches in respect of the sale proceeds from the Kumeu property. There is a dispute as to whether any particular position was agreed. Mr Stevens alleges that the judgment creditor agreed to release funds from the sale of the Kumeu property to be used for the development of Westhoe Heights at Orewa, known as the “Westhoe development”.  Mr Hunwick says that neither he nor anyone else  at  the  judgment  creditor  ever  agreed  to  release  funds  for  that  purpose. Mr Hunwick points out that the judgment creditor was not the financier for the Westhoe development and that it did not make commercial sense for the judgment creditor to release funds to complete a development that the judgment creditor did not have an interest in, particularly when the securities held by the creditor itself required development work.

[23]     On  18 September  2008  the  judgment  debtor  entered  into  an  unlimited guarantee and indemnity in favour of the judgment creditor in respect of all lending of Frontier Properties Ltd and Mr Stevens.

[24]     On 18 September 2008 the judgment creditor applied $498,000 from the sale proceeds from the Kumeu property, as to $390,000 to part repayment of Mr Stevens’ personal loan in reliance on clause 17.1 of the facility agreement’s terms and conditions and $108,000 in respect of Mr Stevens’ loan on what is known as the Cravin  facility.   The Cravin  facility was  secured  by the Kumeu  property.   The

remainder of approximately $343,000 was placed by the judgment creditor on term deposit.   Subsequently, as a result of Mr Stevens’ requests, the judgment creditor released funds from the term deposit to pay the Inland Revenue Department the sum of $103,000, the Waikato District Council $21,000 and Blue Wallace Surveyors Ltd,

$914.06.  A request to release the balance of funds to a third party lender in relation another development was refused.

[25]     The term loan expired on 1 March 2009.   Members of the bank met with Mr Stevens on 26 March 2009.  The judgment creditor agreed to a three-month grace period whereby it would not enforce its rights under the expired term loan on the understanding that Mr Stevens would produce an unconditional sale and purchase agreement for Lot 2 of the Raglan property and that the term deposit was available to the judgment creditor to draw upon on a monthly basis to service the interest charge on all debt for the three-month period between April and June 2009.

[26]     Frontier Properties Ltd and Mr Stevens settled the sale of Lot 2 of the Raglan property on 4 June 2009.   The judgment creditor received $225,000 from the sale proceeds and applied those funds in reduction of the term loan.  Between April and August 2009 the judgment creditor used the term deposit to pay interest, withholding tax and operating costs due on the term deposit account and interest due and owing on various accounts held by Mr Stevens and Frontier Properties Ltd which were then in default.

[27]     In August 2009 Mr Stevens submitted a sale and purchase agreement for the Stanmore Bay property for the judgment creditor’s consideration.   It would have provided $2,800,000 had it been accepted by the judgment creditor.  The judgment creditor declined to release the securities because the amount was well below valuations that the bank had.

[28]     On 8 September 2009 the judgment creditor advised Mr Stevens that the term deposit funds had been used in meeting the August interest payments on the term loan.   The bank advised that it would give one further month to Mr Stevens to arrange for re-financing or an attempt to sell Stanmore Bay.

[29]     On    3 November    2009    the    judgment    creditor    formally    demanded

$3,873,954.58, being the amount required to settle the term loan and the revolving credit facility.

[30]     Frontier  Properties  Ltd  and  Mr Stevens  next  secured  re-financing  with Westpac New Zealand Ltd.  That was undertaken on the basis the $800,000 would be paid to the judgment creditor which, in turn, would release its mortgage over the Coatesville property and Lots 1 and 3 of the Raglan property.  The judgment creditor agreed to that re-financing and, as a result, when the funds were received on or about

16 November  2009  applied  $624,482.52  in  satisfaction  of  the  revolving  credit facility and $175,515.48 in partial reduction of the term loan.   It discharged its mortgage over the Coatesville property and also over Lots 1 and 3 of the Raglan property.

[31]     On 17 November 2009 it made a new demand to Frontier Properties Ltd and Mr Stevens for payment of the debt then due for $3,101,915.16.  That was followed by the service of Property Law Act 2007 notices on 30 November 2009.   They expired unremedied.   On 1 March 2010 the bank retained Barfoot and Thompson, real estate agents, to provide a marketing proposal in respect of the Stanmore Bay property.   The recommendation made was that the property be sold by mortgagee tender.  An estimate of its value on a willing buyer willing seller basis was given at

$3,100,000 and on a forced sale basis at $2,600,000.   On the same day, that is

1 March 2010, the judgment creditor retained Lyons & Co Valuers Ltd to provide a valuation for the Stanmore Bay property.  The valuation provided was on a willing buyer willing seller basis of $2,100,000 and on a forced sale basis of between

$1,600,000 and $1,700,000.

[32]     On  29 April  2010  the  judgment  creditor  sought  a  further  valuation  from

Sheldons Registered Valuers.  Sheldons valued the Stanmore Bay property as is at

$3,525,000.

[33]     On 3 May 2010 the judgment creditor served Property Law Act notices on the judgment debtor.

[34]     Barfoot & Thompson then conducted a marketing campaign for a mortgagee tender in respect of the Stanmore Bay property.  They held eight open homes.  They obtained 81 replies from advertisements.   They had 37 buyer inspections of the property.    The  tender  closed  on  15 June  2010.    The  highest  offer  made  was

$2,607,000, which was accepted by the judgment creditor.   The judgment creditor then applied the net proceeds of $2,220,942.39 in reduction of the balance of the debt owed by Frontier Properties Ltd and Mr Stevens under the facility agreement.

[35]     On 23 August 2010 the judgment creditor made demand on Mr Stevens and

Mr Dye for the shortfall of $1,416,785.39.  The demand was not met.  On 22 March

2011 the judgment creditor applied for summary judgment against both Mr Stevens and Mr Dye.  Mr Dye appeared at the summary judgment hearing but did not oppose the orders sought by the judgment creditor with the result that judgment was entered against  him  for  $1,698,222.96.     Mr  Stevens  opposed  the  application.     That application was heard by Associate Judge Doogue on 4 November 2011.  He granted summary judgment against Mr Stevens on the judgment creditor’s claim.  However, he   declined   the   judgment   creditor’s   application   for   summary  judgment   on Mr Stevens’ counterclaim.  That decision is the subject of an appeal lodged both in respect of the claim and the counterclaim by Mr Stevens and the bank respectively.  I was  advised  that  counsel  did  not  anticipate  a  disposal  of  that  appeal  inside

12 months.

[36]     So far as Mr Dye is concerned, I have already set out in this judgment details concerning the judgment creditor’s request for the issue of a bankruptcy notice, the determination of an application to set aside the bankruptcy notice by Venning J and now the issue of this proceeding.  In addition, there is the new proceeding issued by Mr Dye on 29 November 2011 to which reference has been made.

The issues

[37]     The jurisdictional requirements for the making of an order of adjudication are met in this case.   Mr Dye acknowledges his inability to pay the debt.   He also confirms through his counsel that the debt has not been paid.  The sole matter raised on his behalf is the existence of the claim that he has filed against the judgment

creditor.   On his behalf, the court is invited to either, in its discretion, not order adjudication pursuant to s 37 of the Insolvency Act 2006 or to halt the proceeding on terms pursuant to s 38 of the Insolvency Act 2006.  The only term that was suggested was the determination of the proceeding that Mr Dye has filed against the judgment creditor.

[38]     The judgment debtor has filed an affidavit which sets out his assets, which he values  at  approximately  $10,000.    He  lists  liabilities  to  his  creditors  totalling

$2,141,003.37.   In addition to this judgment creditor, those creditors are Westpac Banking Corporation, including a Mastercard account, Bank of New Zealand for a Visa account and GE for a credit card.

The exercise of discretion in this case

[39]     Whether this matter is approached having regard to the discretion referred to the court under s 37 of the Insolvency Act 2006, or is an application to halt under s 38  of the  Insolvency Act  2006,  the issue is  essentially whether it  is  just  and equitable that the court not make an order of adjudication either at this time by dismissing the proceeding or by halting it pending the determination of the proceeding that Mr Dye has issued.

[40]     Counsel’s research has located a number of cases where the courts have had to consider a dismissal or a delay in the determination of the adjudication application whilst a claim is pursued.7

[41]     Of necessity, because the exercise of a discretion is involved, the case must be looked at having regard to the specific facts involved.

[42]     In Eide v Colonial Mutual Life Assurance Society I summarised the general principles involved in the exercise of the discretion under s 26 of the Insolvency Act

7   Ellis v NZI Finance Ltd CA253/89, 24 July 1990 at [5]; Re Kroon, ex parte Westpac Banking Corporation HC Auckland CIV-2006-404-4720 and CIV-2006-404-1970, 24 April 2007 at [82]- [88]; Dominion Finance Group Ltd (in rec and in liq) v Le Prou HC Rotorua CIV-2011-463-169,

30 August 2011 at [20].

1967 (which is now s 37 of the Insolvency Act 2006) and noted that the important matters were the following:8

1)“A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made.” McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.

2)“. . . in the exercise of the discretion under s 26 it is proper for the Court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

3)In determining whether an order should be made, the wider public interest   must   be   taken   into   account   to   determine   whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public.” Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.

4)“. . . on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of  the  separate  question  of  debt  collection  by  his immediate creditors.” Re Fidow [1989] 2 NZLR 431 at p 444.

5)        Absence of assets is a factor but:

“. . . even the undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited with   the   disqualifications   that   go   with   bankruptcy.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

6)        Another matter:

“. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating  the  financial  circumstances  of  the  debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.” Re Fidow (supra) at p 444.

7)        There is a need:

“. . . for the Court to balance the various considerations relevant to the case, and to determine whether in the end the debtor has succeeded in showing that an order ought not to be made”. McHardy v Wilkins & Davies Marinas Ltd (supra) at p 4.

8   Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC) at 635.

[43]     That approach was expressly approved by the Court of Appeal.9

[44]     Mr Chambers in his submissions, as he did in  the notice of intention  to oppose the application for an adjudication order, focussed on the extant claim as the principal reason for not adjudicating Mr Dye a bankrupt.

[45]     As  I have already recorded,  the merits  of that  pleaded  claim  have  been considered in a preliminary way by Venning J in the bankruptcy notice proceedings. His Honour found that there were considerable difficulties for Mr Dye with the proposed claim and the additional claim.

The judgment debtor’s claims analysed

[46]     The judgment debtor’s first pleaded cause of action pleads that he had an agreement  with  Mr Stevens  that  he  would  receive  a  50  per  cent  stake  in  the development  of  the  Stanmore  Bay  property in  return  for  guaranteeing  the  loan facilities advanced by the judgment creditor.

[47]     The judgment debtor next pleads that the judgment  creditor  entered  into agreements, which he says were ancillary or collateral to the term loan facility and the revolving credit facility.   In particular, he says, that in return for Mr Stevens’ paying the proceeds of sale of secured properties the judgment creditor would:

(a)      Apply those proceedings against the term loan; (b)         Release its security over the relevant properties;

(c)       Release part of the proceeds to Mr Stevens to enable him to continue with his property development projects; and

(d)Renegotiate the term (ie the time) of the term loan and revolving credit facility.

9   Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 631 (CA).

[48]     The judgment debtor next pleads that in breach, both he and Mr Stevens suffered loss in various respects, namely:

(a)      They were prevented from applying $400,000 from the sale of the Kumeu property in payment of the term loan causing them to breach the term loan;

(b)They were prevented from being able to apply $800,000 from the refinanced proceeds in payment of the term loan causing them to breach the term loan;

(c)      Because  of  the  above,  the  judgment  creditor  was  able  to  issue Property Law Act notices and subsequently commence a mortgagee sale in respect of the Stanmore Bay property; and

(d)The Stanmore Bay property was sold at undervalue preventing the judgment debtor from realising profits from the development of the Stanmore Bay property.

[49]     There are a number of difficulties with the claim, which in summary are:

(a)      Mr Dye does not claim that he was a party to any collateral agreement with the judgment creditor;

(b)If Mr Dye’s position is considered in terms of s 4 of the Contracts (Privity) Act 1982, he faces the difficulty of proving that he has been designated by named, description or reference to a class sufficiently so that the court can hold that the contract purports to be for his benefit;

(c)      The terms of the facility agreement do not permit of the existence of the collateral agreements because:

(i)Clause 23.4 provides that no amendment to any document will be effective unless it is in writing, signed by all parties to that document; and

(ii)Clause 23.6 provides that no waiver by the judgment creditor of its rights under the facility agreement or other document will  be  effective  unless  it  is  in  writing  and  signed  by the judgment creditor.

[50]     The alleged collateral agreement is clearly an amendment or variation to the terms of the facility agreement.  Another way of looking at the matter would be that same would amount to a waiver by the judgment creditor of its express rights under the facility agreement.  The Court of Appeal has held that a variation to a contract cannot occur orally where it was expressly provided in the contract that all variations are to be in writing and signed by one of the parties.10    There is no documentary evidence supporting that judgment creditor’s contention that a collateral agreement was made between the judgment creditor and Mr Stevens and that the judgment

creditor had waived its rights.

[51]     The claim, in essence, lacks credibility because there does not seem to be any basis for suggesting that the judgment creditor should extend the term.

[52]     Further, the collateral contract cannot be justified on the material placed before me on the basis  that the terms were to be implied.   No basis has been provided for an assertion that the judgment creditor’s contract has been oppressive in terms of the Credit Contracts and Consumer Finance Act 2003. At the very most, all that the creditor has ever done is to exercise the rights given to it by the contract,

which rights are exercisable because of the default.11

[53]     I  conclude  that  the  judgment  debtor’s  potential  claims  have  substantial

difficulties in relation to this part of the claim.

10    Air New Zealand Ltd v Nippon Credit Bank Ltd [1997] 1 NZLR 218 (CA) at 227.

11    Bevin v Public Services Investment Society Ltd (1994) 2 NZ Convc 191,821 (CA) at 191,825.

[54]     The second cause of action appears to roll together two independent bases of claim.  The first appears to be that there was no justification for issuing the notices under s 120 of the Property Law Act 2007.  That allegation, however, in turn relies on the allegations that I have analysed under the first claim made.  For that reason, that part of the second cause of action adds nothing to the position of the judgment debtor in terms of his possible prospects of success.

[55]     The second part of the second cause of action is a claim that the judgment creditor breached the obligation imposed on it to obtain the best price reasonably obtainable at the time of sale pursuant to s 176(1) of the Property Law Act 2007.  I had cause to summarise the relevant matters that are taken into account when the power of sale is exercised in Crown Money Corporation Ltd v Pink-Martin.12    A

similar exercise was carried out by Asher J in Public Trust v Ottow.13

[56]     The background that I have analysed strongly suggests that the judgment creditor in fact discharged its duty to both Mr Stevens and Mr Dye.  There is nothing to suggest that the potential market for the sale of the Stanmore Bay property at the time was not appropriately tested.  Even when one considers the valuation evidence advanced  by  the  judgment  debtor,  one  comes  to  the  conclusion  that  no  actual evidence of a sale at under-value at the time of sale exists.

Conclusions

[57]     The jurisdictional basis for the making of an order of adjudication has been met by the judgment creditor in this case.   When I consider the exercise of the discretion under s 37 of the Insolvency Act 2006 and the matters to which I made reference in Eide v Colonial Mutual Life Assurance Society Ltd14 and, in particular, the only substantial matter placed before the court as a ground for the exercise of discretion, namely the existence of a claim, and having considered that claim and

found it to be of little substance, a position that accords with the conclusion of

12    Crown Money Corporation Ltd v Pink-Martin HC Auckland CIV-2008-404-297, 5 September

2008, at [32].

13    Public Trust v Ottow (2010) 10 NZCPR 879 at [17].

14    Eide v Colonial Mutual Life Assurance Society Ltd, above n 8.

Venning J in the bankruptcy case, I conclude that there is no justification to exercise the discretion against ordering adjudication in this case.  Likewise, there is simply no justification for staying the proceeding while the claim proceeds.  Indeed, to do so has the potential to disadvantage the creditor’s position and indeed any other creditors’ position.

Orders

[58]     Accordingly, I order that Russell Desmond Dye be adjudicated bankrupt. [59]          This order is made at 12 noon on 4 April 2012.

Costs

[60]     The  judgment  creditor  is  entitled  to  costs  based  on  Category 2,  Band B

together with disbursements as fixed by the Registrar.

JA Faire

Associate Judge