Bank of New Zealand v Koroniadis

[2013] NZHC 2865

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-2905 [2013] NZHC 2865

UNDER  the Insolvency Act 2006

IN THE MATTER OF       the bankruptcy of ATHANASIOS KORONIADIS

BETWEEN  BANK OF NEW ZEALAND Judgment Creditor

ANDATHANASIOS KORONIADIS Judgment Debtor

Hearing:                   25 October 2013

Appearances:           J T Toebes for Judgment Creditor

A Koroniadis, Judgment Debtor in person

Judgment:                25 October 2013

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

JT Law, Wellington, for Plaintiff

Copy for:

Mr Athanasios Koroniadis, Wellington, Second Defendant

BANK OF NEW ZEALAND v KORONIADIS [2013] NZHC 2865 [25 October 2013]

[1]      The   Bank   of   New   Zealand   has   applied   for   an   order   adjudicating Mr Koroniadis bankrupt.  Mr Koroniadis opposes and, in addition, he has applied for a stay of the bankruptcy application.  This is a decision on his application to stay. The application can properly be considered as an application to halt under s 38 of the Insolvency Act 2006.

Background

[2]      The background to this matter is that on 8 July 2013 the bank obtained summary judgment against Mr Koroniadis.  It had sued him and his brother under a guarantee they had given in support of financial accommodation the bank had given to their company, Miramar Development Ltd.  In 2008 the bank had given Miramar Development Ltd a table loan for $1,100,000.  The bank had also provided Miramar Development Ltd with an overdraft facility.   The bank took a mortgage over a commercial property at 19 Edward Street, central Wellington.  It also took a general security agreement from Miramar Development Ltd.

[3]      The company defaulted in making payments under the table loan.  In 2012 the bank made demand for payment of arrears.  When that demand was not met it appointed receivers.  Later in 2012 it served notices under s 119 of the Property Law Act on the company and the guarantors.  It also served a notice under s 122 of the Property Law Act. The defaults were not remedied. The bank made demand on both the guarantors under the guarantee.   The bank then sued.   Mr Konstandinos Koroniadis, the brother of Mr Athanasios Koroniadis, did not oppose the application and judgment was given against him by default.   Mr Athanasios Koroniadis did oppose.   On the opposed summary judgment application Associate Judge Gendall gave judgment in favour of the bank.

[4]      Mr Koroniadis had also filed a counterclaim against the bank but I granted

the bank’s summary judgment application against that counterclaim on 21 October

2013.

[5]      On 5 September 2013 Mr Kostandinos Koroniadis paid the bank the sum of

$250,000 which the bank accepted in full and final settlement of his liability under the judgment.

[6]      The  bank  has  left  the  receivers  to  arrange  the  sale  of  the  property  at

19 Edward Street, Wellington.  The receivers have not sold the property yet.  There are problems with selling the property.   In particular there are said to be risks attaching to the building in terms of seismic issues and there is apparently limited demand on the market for properties of this sort.   The bank has put in evidence reports  that  registered  valuers  have  given  earlier  this  year  suggesting  a  current market value for the property of about $800,000.  The reports do not seem to address the question of sale on a forced sale basis.  According to evidence given by a bank officer, the highest offer received for the property so far is $690,000.  That offer has not been accepted.

[7]      For this hearing the bank provided an affidavit updating the quantum.  That affidavit stated that the amount now owing under the judgment is $953,981.04. I have reviewed that with Mr Toebes.   He accepted that that may be an incorrect calculation.   Once the payment of $250,000 on 5 September 2013 is taken into account, the balance under the judgment as at 5 September 2013 appears to be

$872,840.02.   Interest under the judgment runs at 5 per cent per annum, at an apparent daily rate of $119.57.  On that basis, interest on the sum due at 5 September

2013 could not be more than about $6,000.

[8]      The  act  of  bankruptcy  the  bank  relies  on  is  non-compliance  with  a bankruptcy notice which was based on the judgment of Associate Judge Gendall of

8 July 2013.  Notice was served on Mr Koroniadis, and he did not comply with the notice or apply to set aside the bankruptcy notice within the time for compliance.

Mr Koroniadis’ appeal

[9]      Mr Koroniadis has tried to appeal to the Court of Appeal against the decision of Associate Judge Gendall.  He lodged a notice of appeal with the Court of Appeal on 5 August 2013.  That was the last day on which he could file a notice of appeal.

However, he did not serve the notice of appeal on the bank’s lawyers until the following day.  To bring an appeal in the Court of Appeal he is required not only to file the appeal but also to serve it on the respondent.  An appeal is not considered to have   been   brought   until   both   steps   have   been   taken.      Unfortunately   for Mr Koroniadis he is one day late.   He has applied to the Court of Appeal for an extension of time for appealing under r 29A of the Court of Appeal (Civil) Rules

2005.  So far, the Court of Appeal has not heard or determined that application.  It appears that the bank will oppose the application by Mr Koroniadis for an extension of time.   Mr Koroniadis asks for a stay of the proceeding while he pursues his appeal.

[10]     Section 38 of the Insolvency Act says:

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.

[11]     The section is in general terms.  It does not set out any particular matters that the court must take into account when considering an application to halt an adjudication application.  If  Parliament has not set out particular matters which the courts must take into account, it would be inappropriate for the courts themselves to formulate fixed rules as to the exercise of the discretion.   It seems clear that Parliament intended the discretion to be flexible.   It allows the courts to take into account varying circumstances which may take different weight according to each case.

[12]     Applications to halt an adjudication application are often made when the debtor wishes to challenge a judgment which has been given against him or her.  The challenge might take the form of an application to set aside a judgment by default, an application to review a decision by an Associate Judge or an appeal to a higher court. While that is a common context for applications to halt, it is not automatic that the court will  grant  a halt  just because the debtor has applied  for a review or has appealed. There have been cases where courts have declined to grant a halt and have

instead proceeded immediately to adjudication.   In those cases the control of the appeal passes from the bankrupt to the Official Assignee.   It remains open for the appeal to be conducted – not by the bankrupt but under the control of the Official Assignee.  In many cases that can be useful.  It allows for an independent review of the merits of the case.  Often the benefit of that review is that finality is brought to litigation when the pursuit of the litigation seems to be fruitless.  But there can also be disadvantages.   In my experience I have found that bankrupts often feel a real sense of grievance because they have not had an opportunity to pursue an appeal against the judgment which they consider was wrongly given against them.   That sense of grievance has to be recognised.  Those circumstances can sow the seeds for potentially vexatious behaviour.   For these reasons, it is necessary to be cautious about assuming that because there may be merits in the appeal, the Official Assignee would be able to attend to it.

[13]     In this case it is my judgment that Mr Koroniadis ought to be given the opportunity of trying to demonstrate to the Court of Appeal that he should have an extension of time for his appeal.  There may be potential grounds for his appeal that he may wish to advance which may be worthy of consideration by the Court of Appeal.  During the hearing today I have discussed two of them.

[14]     One of them concerns the acceleration of the loan by the Bank of New Zealand.  The bank did serve notices under s 119 of the Property Law Act.  Service of a notice under s 119 is necessary before any acceleration clause can operate.  The definition of acceleration clause in s 4 of the Property Law Act covers both clauses where acceleration happens automatically and clauses where acceleration is not automatic but gives the occasion for a balance payable under a loan to be called up. The table loan facility in this case seems to be subject to a provision under which the balance payable under the facility is not repayable automatically on default, but only on the bank making demand. The bank does not seem to have included any evidence on its summary judgment application that it had called up the balance after the time for complying with the notice under s 119 had expired.

[15]     The other matter concerns the question of service of a notice under s 121 of the Property Law Act.  The bank had difficulty serving Mr Koroniadis with a copy of

the notice under s 119.  The notice was issued on 5 October 2012 and required any defaults to be remedied by 9 November 2012.  In fact Mr Koroniadis was not served until 19 November 2012, which was after the date for remedying the default. Associate Judge Gendall accepted the bank’s case that it had complied with s 121 because it had served the notice on Mr Koroniadis as soon as possible.

[16]     There remains the point whether the service must still be made on a former mortgagor or covenantor or other person required to be served under s 121 before the time for remedying the default has expired.  Notices under s 121 serve a different purpose from notices under s 122. The purpose of notices under s122 of the Property Law Act seems to be to give guarantors or former mortgagors the opportunity to exercise the power of redemption under s 97 of the Property Law Act.  The purpose of serving a notice under s 119 on a former mortgagor or covenantor or other person under s 121 seems to be to give them an opportunity to remedy the mortgagor’s default within the time provided under s 119.  I understand from Mr Toebes that the requirements of s 121 may not have been the subject of any earlier considered decisions.  The implications of serving a notice under s 121 outside the period for compliance is a matter that may be worthy of consideration by the Court of Appeal.

[17]     I mention these simply as matters which may be worth raising with the Court of Appeal so that it can consider whether there is a proper basis for extending time. Given these factors, I am reluctant to deprive Mr Koroniadis of the opportunity of at least raising these matters with the Court of Appeal, and doing so himself.

[18]     Accordingly, I make an order halting this proceeding under s 38.  That halt will run pending further order of the court.  The bank may ask for the bankruptcy application to be listed in the first available bankruptcy list after the Court of Appeal has  given  any  relevant  decision  on  any  application  by  Mr  Koroniadis  for  an extension of time under r 29A of the Court of Appeal (Civil) Rules, or of the Court of Appeal determining the merits of the appeal by Mr Koroniadis, or if there is a proper basis for contending that Mr Koroniadis is not diligently pursuing his appeal rights in the Court of Appeal.

[19]     Mr Koroniadis also proposed that the bank’s adjudication application be put on halt while the bank or the receivers sell the building at 19 Edward Street, Wellington.  I do not grant the halt on that basis.  That is because under guarantee law it is well established that a creditor can elect what remedies to take and in what order to take them.   As guarantor, it is not for Mr Koroniadis to direct how the creditor should pursue its remedies.

[20]     Mr Toebes asked that Mr Koroniadis should pay the bank’s costs on the bankruptcy application to date.  I decline to make that a condition of the order for halt.  Mr Koroniadis, as a lay person, has tried diligently to pursue his appeal rights. It is not for me at the moment to condemn his appeal as vexatious.   The bank, likewise, has diligently pursued its rights.   The bank’s bankruptcy application has overtaken the steps taken by Mr Koroniadis to obtain a review of the decision of this court in the Court of Appeal.  That circumstance in itself does not merit the court requiring Mr Koroniadis to pay the bank its costs at present.  I decline to order costs as a condition of the halt under s 38.

.............................................

Associate Judge R M Bell