Bank of New Zealand v Meban

[2018] NZHC 711

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-001779

[2018] NZHC 711

BETWEEN

BANK OF NEW ZEALAND

Judgment Creditor

AND

DAVID BRUCE MEBAN

Judgment Debtor

Hearing:	16 April 2018
Appearances:	T J G Allan for Judgment Creditor D J G Cox for Judgment Debtor
Judgment:	27 April 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

This judgment was delivered by me at 1.00 pm on 27 April 2018 pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Grove Darlow & Partners, Auckland Rennie, Cox Auckland

BANK OF NEW ZEALAND v MEBAN [2018] NZHC 711 [27 April 2018]

[1]    On 2 June 2010 the judgment creditor (BNZ) entered judgment against the judgment debtor (Mr Meban) on an admission of claim, in the sum of $755,573.96.

[2]    On 23 August 2017 the High Court at Auckland issued a bankruptcy notice to Mr Meban on the application of BNZ in respect of the sum which BNZ maintained remained owing under the judgment.

[3]    After a question arose from the High Court Registry about whether the request for a bankruptcy notice could be accepted for filing given the time since entry of judgment, Associate Judge Bell issued two Minutes. He dealt with the timing point, but also noted that BNZ could only issue a notice in respect of unpaid sums under the judgment, and not any other extraneous debt it may claim against Mr Meban. He ruled that the amount owing under the judgment that could be claimed in the bankruptcy notice was $386,503.62 as at 1 August 2017.

[4]    Mr Meban did not apply to set aside the bankruptcy notice, nor meet all or any part of the sum claimed in the notice, with a result that BNZ applies for an order adjudicating him bankrupt. Mr Meban opposes the making of an order of adjudication.

[5]He relies on s 37(c) of the Insolvency Act:

37     Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if –

(a)      …

(b)      …

(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.

The events since 2010

[6]    Mr Meban’s indebtedness to BNZ arose from his activity, through various entities, in the development of properties, which was funded by BNZ. It seems that by 2010 his obligations to BNZ under guarantees were in arrears and BNZ applied for

summary judgment against him. Judgment was entered on an admission of claim. BNZ enforced a mortgage security it held over certain properties, which resulted in it receiving net proceeds of sale of $376,279.40, and filed a proceeding seeking adjudication of Mr Meban in bankruptcy.

[7]    Mr Meban also made substantial payments and, as a result of these payments BNZ agreed to enter into a settlement agreement with Mr Meban in relation to the balance of the debt.   As one of the terms of this settlement in September 2012      Mr Meban acknowledged debt in the sum of $435,296.97 plus interest. Given the payments received by BNZ by then, this figure must have included accrued interest and costs.

[8]    Mr Meban made payments of $27,500 between September and December 2012. He did not make any further payments at that point. In April 2013 BNZ issued a second bankruptcy notice, but before the Court was called on to adjudicate on     Mr Meban’s bankruptcy a second settlement was reached with BNZ. This required Mr Meban to make specific payments and provided that if he made those payments BNZ would accept them in full and final settlement of his indebtedness. The intended source of these monies was the sale of a property, but unfortunately that sale did not proceed. Mr Meban was able to borrow $65,000 from a family source to make a payment in that sum on account of his next commitment to BNZ, but was not able to fully meet the commitments he made in the second settlement.

[9]    In May 2014 BNZ issued a third bankruptcy notice against Mr Meban. Again, before the Court was required to adjudicate on the application, another settlement was reached with BNZ. Mr Meban did not make a required payment as receipt of funds from one source was delayed due to delayed settlement on the sale of a property. Ultimately another settlement agreement was reached with BNZ, and the third bankruptcy proceeding was discontinued.

[10]   Mr Meban did not comply with the obligations imposed on him by this settlement, and the present application ensued.

[11]    By February 2016 BNZ had received $935,401.07 on account of Mr Meban’s indebtedness. It will be seen that this sum exceeds the judgment sum. However, it is now nearly eight years since judgment was entered and as the above brief recitation of subsequent events discloses, both Mr Meban and BNZ have been actively engaged in a number of steps aimed at satisfying the judgment and settling a series of bankruptcy proceedings. Mr Meban has been required to pay BNZ’s legal costs each time a proceeding has been issued and a settlement has been reached. As well, although significant payments were made relatively shortly after the judgment was entered, interest has been accruing at penalty rates on the outstanding balances. According to BNZ the consequence is that the sum claimed in the bankruptcy notice (as amended after intervention by Associate Judge Bell, recorded above) remains owing on the original judgment debt.

The case for BNZ

[12]   The position of BNZ is essentially straight-forward. It has a judgment against Mr Meban, and despite three prior applications to have Mr Meban adjudicated bankrupt and four settlements by which BNZ withdrew those applications in return for commitments by Mr Meban to make payments, a significant part of the judgment remains unpaid. Whilst the Bank has received part of the original judgment debt, and substantial sums by way of interest in the meantime, as well as recompense for legal fees incurred in dealing with Mr Meban, it still seeks to recover the balance of the original judgment. It says that despite Mr Meban’s present opposition to this application he has not established any basis on which the Court could exercise the discretion given by s 37 in Mr Meban’s favour.

The case for Mr Meban

[13]   Mr Cox, for Mr Meban, relies on the dictum of Richardson J in Baker v Westpac Banking Corporation: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. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of

1      Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at 4.

the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets. …

[14]Mr Cox also notes this passage from Re Sturdee (a debtor):2

In considering a bankruptcy petition the Court does not have exclusive regard to the wishes of the petitioner, the creditors, or the debtor. It has also to consider whether the course proposed is conducive or detrimental to commercial morality and the interests of the general public.

[15]   Mr Cox noted that in Re Taylor,3 the Court took into account the economic climate which prevailed for some years from 1987, which might cause a person finding him or herself insolvent “through no fault or foible” of his or her own.

[16]   Against this background the argument Mr Cox presents is based on three principal factors. First, Mr Meban has in fact paid approximately $180,000 more than the original judgment debt, and secondly despite the downturn in the economy after 2008, which put Mr Meban’s property development activities in considerable jeopardy, he has made strenuous efforts to pay and has not at any point ignored his responsibilities willingly. Thirdly, he says that Mr Meban does not have funds to make any further payment to BNZ, and no useful purpose would be achieved by Mr Meban, who is 71, being adjudicated bankrupt.

[17]   Interwoven with Mr Cox’s submissions on these principal areas was a level of criticism of BNZ’s actions since the judgment was entered. He points out that bankruptcy notices issued against Mr Meban have been for sums which were not derived from the judgment, but rather from BNZ’s own calculation of the sum owing by Mr Meban, which included interest not provided for in the judgment, and costs not provided for in the judgment either. He also criticised BNZ for bringing no fewer than four bankruptcy applications against Mr Meban.

Discussion

[18]   The last two points mentioned can be dealt with briefly. First, there is some force in Mr Cox’s submissions that earlier bankruptcy notices did claim sums to which

2      Re Sturdee (a debtor) [1985] 2 NZLR 627 at 635.

3      Re Taylor ex parte Greenwood (1992) 4 NZBLC 102,875.

BNZ may not have been entitled, because they sought interest at BNZ’s commercial rates. There is no mention in the judgment of BNZ being entitled to recover interest beyond the date of judgment, nor any further costs. However, those matters are in the past, and prior to this proceeding being issued the sum owing on the bankruptcy notice which was requested from the Court was amended after consideration by Associate Judge Bell. The Judge was asked by the Registry to review the question of whether a bankruptcy notice could properly be issued by the Registry of the Court given the time that has passed since judgment was entered. In reviewing this the Judge noted that the bankruptcy notice request then before the Court appeared to include interest to which BNZ was not entitled. The Judge noted an acknowledgement by Mr Meban of a sum owing by Mr Meban under the judgment as at 23 June 2014 and from that point calculated the sum which could be included in the bankruptcy notice. Mr Cox’s criticism of the earlier bankruptcy notices issued by the Court at the request of BNZ was not directed at suggesting that the present bankruptcy notice was for an excessive amount, rather at BNZ having sought to take advantage of Mr Meban by claiming excessive amounts on earlier occasions. Given that every other bankruptcy proceeding before the Court was settled on terms which Mr Meban agreed to in writing, nothing turns on the point now. Any attendant suggestion that BNZ put undue pressure on Mr Meban is not made out.

[19]   Secondly, BNZ cannot be criticised for bringing four applications to adjudicate Mr Meban bankrupt, when in relation to the first three a settlement was reached with the full agreement of Mr Meban (on legal advice), and it is he who, on each occasion, breached the terms of the settlement reached.

[20]   As a matter of simple arithmetic Mr Meban has paid to BNZ sums of money which in aggregate amount to more than the sum for which judgment was entered. That, however, is beside the point. Because the judgment debt was not met BNZ applied penalty interest rates in accordance with the loan contracts under which the sums in question were borrowed. Further, ongoing defaults in payment led to BNZ taking enforcement steps, and in each settlement Mr Meban agreed to pay BNZ’s legal fees. BNZ has applied Mr Meban’s payments to interest and fees before the core debt for which judgment was entered. The consequence is that despite making payments in excess of the judgment debt, the passing of time and the aggregation of enforcement

costs has added substantially to Mr Meban’s liability and the sum claimed in the bankruptcy notice remains owing. Comparing the judgment debt with the amount paid is not comparing sums of money calculated on the same basis. If a calculation were presented to the Court which showed the original judgment debt, accrual of interest, addition of legal fees, and payments made, the result would be that a significant part of the core debt would be owing. No such calculation was presented to the Court but it is implicit in BNZ’s case that the sum in the bankruptcy notice is the end result of such a calculation. Had Mr Meban been able to meet the judgment debt earlier the payments he has made may well have covered the judgment debt, but that is not how matters played out.

[21]   Mr Cox emphasised that Mr Meban has made strenuous efforts to pay BNZ in full. This is not a case of a debtor ignoring his responsibilities. I accept this submission. Mr Meban and his companies were caught in the economic downturn that followed the share market crash of 2008, with sales contracts for developed properties falling over, and developments being in jeopardy for other reasons. Notwithstanding that, he has made substantial efforts to make payments to BNZ not only from his own resources but also from related family resources.

[22]   It does not follow, however, that BNZ has acted oppressively in continuing to seek repayment of its advances when the efforts made by Mr Meban have failed to achieve that end. In fact, BNZ responded positively to Mr Meban’s efforts to repay his debt by withdrawing bankruptcy proceedings and reaching settlements which, had Mr Meban been able to meet them, would have resulted in his overall indebtedness being substantially reduced. As an example of this, the settlement deed entered on  15 May 2015 contains an acknowledgement from Mr Meban that he owed BNZ

$471,447.55. The total payments which BNZ agreed to accept, by payments over a period of time, was $198,000. The deed of settlement expressly states that BNZ would accept these payments in full and final settlement of the total indebtedness Mr Meban then owed BNZ. In the event Mr Meban was not able to make the payments that were agreed to, and nor were the trustees of Mr Meban’s wife’s trust, the Strowan Trust, which was also a party to this settlement. It cannot be said, however, in this circumstance, that BNZ acted in any way punitively or unreasonably. Unfortunate though it is, it is Mr Meban (and latterly his wife’s trust) who have not honoured the

agreements reached with BNZ and thus been able to take advantage of the discounts from full liability which BNZ agreed to.

[23]   Mr Cox’s final argument was that nothing would be gained by Mr Meban being adjudicated bankrupt because on his own evidence he does not have any more money with which to meet the  judgment  debt.  BNZ  does  not  accept  this,  saying  that Mr Meban has not been forthcoming about his present financial position.

[24]   In his affidavit filed in support of his defence of this application Mr Meban says:

I do not have funds to make any further payment, and given the payments received to date, I do not believe that it is just or equitable for the BNZ to be able to bankrupt me now.

[25]   Absent from this statement is any factual material to back it up. Mr Meban refers simply to not having “funds”. He does not give any indication of his assets or his liabilities, whether he is working or not, or whether he has access to any other funds through any other family trusts in which he may have an interest. Mr Cox’s suggestion that BNZ would not recover any monies if Mr Meban is adjudicated bankrupt is not backed up by any information on which the Court can reach a reasoned conclusion to that effect. Furthermore, BNZ produced an email it had received, through its solicitor, from Mr Meban’s lawyer in January 2016 referring (in terms which cannot be fully understood from the email alone) to:

(a)    First Mortgage Trust issuing a Property Law Act notice which has expired, requiring $1,014,640.28 to be paid that day.

(b)    Southern Cross Finance approving a new first mortgage advance of

$1,193,650.

(c)    Some of these funds being used to repay First Mortgage Trust but part being withheld for progressive release “to pay for the remaining subdivision costs”.

(d)    $112,650 being available “on settlement of the sale of the sections” to repay the second mortgagee.

(e)    Phoenix Finance Ltd agreeing to advance $100,000 by way of second mortgage.

(f)     “Our client” requesting a further $50,000 to be able to repay BNZ completely.

[26]   This email concludes with a request to BNZ in relation to receiving partial repayment and giving priority to a new mortgage to Southern Cross Finance.

[27]   It is clear from this that as at January 2016 Mr Meban was involved in transactions of some financial significance including a subdivision and financing ongoing activities of that enterprise. That is to be contrasted with Mr Meban now describing himself as “semi-retired” without any indication at all of what that means. Whilst the email in question was sent over two years ago, there is no evidence before the Court as to what occurred next in relation to the transactions in question. The Court is left with the impression that Mr Meban’s statements that he is semi-retired and does not have any funds are disingenuous. Mr Meban asks the Court to exercise a discretion in his favour not to adjudicate him bankrupt on a debt to BNZ which has now been outstanding for over seven years, but has completely failed to put before the Court any material evidence to support his counsel’s submission that nothing would be gained for BNZ by adjudicating Mr Meban bankrupt because he has no funds to pay to BNZ. At the very least, the Official Assignee could investigate whether the transaction referred to in  the  above  email  may  yet result  in  a financial gain to  Mr Meban.

[28]   The final point made by Mr Cox, based on Mr Meban’s evidence, is that at various times the solicitor acting for BNZ has led Mr Meban to believe that notwithstanding the clear terms of the settlement deeds entered over the last few years, BNZ would probably make a deal with him to settle the debt in full. This seems to be brought to the Court’s attention to demonstrate that in some way Mr Meban was being misled, or cajoled into signing documents which were not accurate or beneficial, because in the end BNZ would not enforce them in their terms.

[29]   On the evidence this is simply not made out. It relies entirely on Mr Cox’s assertions, which are entirely denied by the solicitor concerned, in an affidavit filed in response. Further, one need only look at the series of settlements to see that if BNZ did give such indications through its solicitor, it did in fact agree to different settlement terms, repeatedly, in response to Mr Meban’s circumstances as they evolved.

[30]   My conclusion on all  the  material  put  before  the  Court  is  this.  Whilst Mr Meban and his business enterprises were caught (as so many businesses were) by the economic downturn of the late 2000s and early 2010s, BNZ’s response to that predicament has been fair. No fewer than four times it has reached a settlement agreement giving more time and adjusted terms for payment, including writing off very significant sums provided agreed payments were made. Far from being vindictive as counsel suggested I find that BNZ has acted reasonably in response to Mr Meban’s changing circumstances.

[31]   For these reasons Mr Meban has not shown that the Court should exercise its discretion not to adjudicate him bankrupt, either on the basis that it would be just and equitable to respond to this application in that way, or for any other reason.

Outcome

[32]   The Court makes an order adjudicating Mr Meban bankrupt. The time of the adjudication is the time of release of this judgment.

[33]   Mr Meban will pay costs to BNZ on a 2B basis together with disbursements fixed by the Registrar.

J G Matthews Associate Judge