Bank of New Zealand v Tiller
[2022] NZHC 396
•9 March 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2016-485-596
[2022] NZHC 396
UNDER section 309 of the Insolvency Act 2006 IN THE MATTER
of an application for annulment of the bankruptcy adjudication of Robyn Elizabeth Tiller
BETWEEN
BANK OF NEW ZEALAND
Judgment Creditor
AND
ROBYN ELIZABETH TILLER
Judgment Debtor
Hearing: 9 February 2022 Appearances:
R Gordon for judgment creditor P Ross for judgment debtor
D Dingwall for the Official Assignee
Judgment:
9 March 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction and background
[1] This is an application by the judgment debtor, Robyn Tiller, for an annulment of her bankruptcy pursuant to s 309 of the Insolvency Act 2006. The judgment creditor, the Bank of New Zealand, opposes the application. The Official Assignee takes a neutral position. The factual background, whilst somewhat unusual, is not controversial.
[2] Mrs Tiller and her husband, Michael Tiller, were the shareholders and directors of Isabel Estate Vineyard Ltd. The company was formed in the early 1980s. It has
BANK OF NEW ZEALAND v TILLER [2022] NZHC 396 [9 March 2022]
since been in receivership and liquidation, and has now been removed from the Register.
[3] By early 2014, the company was facing serious financial difficulties. BNZ, its principal financier, had been monitoring it closely for some time.
[4] In January 2014, PricewaterhouseCoopers carried out an independent analysis of the company’s viability. PwC said that the company was insolvent and without refinancing it was hard to see it having a future. Those are my words. However, I think they accurately reflect the terms of the report.
[5] In February 2014, BNZ offered a refinancing package which was taken up by the company. The contemporaneous correspondence confirms that the facility was intended to be a short term one expiring on 30 June 2014, and that both parties were well aware of that.
[6]The company’s obligations were guaranteed by Mr and Mrs Tiller.
[7]By mid-2014 the company’s indebtedness to the bank stood at more than
$12 m, the lion’s share of which debt reflected the term loan advanced earlier in the year of over $11 m.
[8]The 30 June 2014 date came and went, and the company did not repay the loan.
[9] There is no suggestion in any of the contemporaneous correspondence that BNZ held out to the Tillers any hope that the loan would be renewed. From a commercial perspective, that is unsurprising, given the history of the relationship between the parties, and the bank’s apparent desire to quit the relationship.
[10] To the extent that Mr and Mrs Tiller say in their affidavit evidence that they had anything approaching a justified expectation that the bank would renew, or, as they put it, “roll-over”, the loan on 30 June 2014, I do not accept that.
[11] In April 2014, Mr and Mrs Tiller had travelled to mainland Europe. They say that this was a sales trip. They say that their intention was to be away for six months during which time they hoped to build up the company’s customer base.
[12] Upon the expiry of the term of the loan, BNZ wrote to the company and to Mr and Mrs Tiller effectively saying that the bank would move to enforce the debt unless it was repaid. In replying to this correspondence, Mr and Mrs Tiller made it clear that neither the company nor they were in a financial position to repay.
[13] On 1 July 2014, BNZ made demand on the company and on Mr and Mrs Tiller pursuant to their guarantees for the total sum of over $12 m.
[14] On 2 July 2014, BNZ appointed receivers, Mr John Fisk and Mr Richard Long of PwC. Mr and Mrs Tiller acknowledged notification of this saying it was not unexpected and that they would cooperate with the receivers.
[15] Mr and Mrs Tiller returned to New Zealand in August 2014. They vacated their home over which BNZ held a charge soon after their return.
[16] In October 2014 the receivers took steps to sell the company’s assets. At the conclusion of that exercise, they calculated that there was a net shortfall of
$6,841,065.10.
[17] BNZ looked to Mr and Mrs Tiller in respect of that shortfall. The bank wrote to Mr and Mrs Tiller on 17 October 2014 notifying them of its claim pursuant to their guarantees. By this time, the Tillers had left the country again. They were in Australia. They responded on 23 October 2014. The thrust of their response was to the effect that they were not in a position to meet their obligations to the bank — they said they were not even in a position to buy a cheap second-hand car.
[18] On 19 January 2016, BNZ commenced summary judgment proceedings against Mr and Mrs Tiller. It applied for and obtained an order for substituted service. This was made by Associate Judge Osborne (as Osborne J then was) on 8 April 2016. This order required the bank to effect service by emailing copies of the originating
documentation to an email address ([email protected]) and serve the same on the defendant’s daughter, Jane Tiller, at her home in Blenheim.
[19] BNZ served the originating documentation pursuant to that order. The Tillers took no steps in the proceeding. Summary judgment was entered by default in the bank’s favour against the Tillers jointly and severally on 14 June 2016, resulting in a judgment debt of $6,841,065.10.
[20]BNZ initiated bankruptcy proceedings.
[21] An order for substituted service was sought and made by Associate Judge Smith on 16 August 2016. This order applied both to any bankruptcy notices and the originating documentation in any bankruptcy proceedings. It was in the same terms as the previous order.
[22] BNZ served the bankruptcy notices pursuant to that order. The Tillers took no steps.
[23] Following the expiration of the period for compliance with the bankruptcy notices, BNZ issued bankruptcy proceedings. The bank served the originating documentation pursuant to the Court’s earlier order. Again, the Tillers took no steps.
[24] The bankruptcy proceedings came on for hearing before Associate Judge Smith on 29 November 2016 and the judge made orders adjudicating both Mr and Mrs Tiller bankrupt.
[25] Following their adjudications, Mr and Mrs Tiller filed statements of their affairs.
[26] Mr and Mrs Tiller were both discharged from bankruptcy on 14 December 2019.
[27] Now, five years after her adjudication, and two years after her discharge, Mrs Tiller applies for an annulment. The bank’s judgment debt remains unpaid.
[28] On behalf of BNZ, Mr Gordon submits that it is clear what is behind Mrs Tiller’s application. During her bankruptcy, Mrs Tiller purchased and developed a residential property in Waipawa. The Official Assignee later determined that the property formed part of her bankrupt estate. Mrs Tiller appealed from that determination. On 22 July 2021, Grice J delivered a judgment dismissing the appeal.1 Shortly after this, Mrs Tiller filed this application. In it, for the first time, as far as I can discern, Mrs Tiller says that she was not served with the originating documentation in the summary judgment proceeding, the bankruptcy notice or the originating documentation in the bankruptcy proceeding, and therefore had no opportunity to respond to them.
Mrs Tiller’s application
[29] Section 309(1) provides that the Court may annul adjudications in bankruptcy in several circumstances. The only aspect of the provision that could possibly apply here is sub-para (a) entitling the Court to annul an adjudication if it considers that the bankrupt should not have been adjudicated bankrupt in the first place.
[30] Annulment is a power seldom used, and application for annulment is not an opportunity for the applicant to challenge the debt on which the bankruptcy was based, or re-litigate the substance of the adjudication.2 The right to challenge the judgment upon which an adjudication order is based rests with the Official Assignee.3 In addition, the need to promote commercial certainty means the courts do not look favourably on applications following significant delay.4 However, an application for annulment is not barred automatically by the fact that the bankrupt has already been discharged.5
[31] The argument advanced on Mrs Tiller’s behalf by Mr Ross is that she should not have been adjudicated bankrupt because she did not receive the originating documentation in the proceeding in which judgment was obtained, the bankruptcy
1 Tiller v Official Assignee [2021] NZHC 2584.
2 Re Willis, ex parte Willis [2017] NZHC 2586 at [38].
3 Boaler v Power [1910] 2 KB 229 (CA), cited in Re Ironstone Holdings Ltd, ex parte Prasad [2013] NZHC 3529; Keung v Official Assignee [2021] NZCA 92.
4 Keung v Official Assignee [2021] NZCA 92 at [37].
5 Keung v Official Assignee [2020] NZHC 32.
notice or the originating documentation in this proceeding. Therefore, it is contended, she did not have a chance to defend the underlying summary judgment proceeding, apply to set aside the bankruptcy notice or defend the bankruptcy proceeding.
[32] In dealing with matters such as applications to set aside judgments obtained by default, the law distinguishes between judgments obtained irregularly and regularly. In the case of the former, once it is established that the judgment was obtained irregularly, that is an end of the matter. The judgment debtor is entitled to have the judgment set aside ex debito jusitiae —as of right.6 In the case of the latter, the Court will consider whether there is any explanation for the defendant, respondent or other party failing to take whatever steps were available and — significantly — whether the Court is satisfied that there was a reasonably arguable defence available.7
[33] As I understood Mr Ross’ submissions on behalf of Mrs Tiller, it proceeded on the basis that the summary judgment in this case was obtained irregularly because she did not receive the originating documentation. He contended that the Court should not look beyond that. He said that the same argument applied to the subsequent steps leading to Mrs Tiller’s adjudication.
[34] As already said, in all three instances, service took place pursuant to orders for substituted service. Such orders are made by the Court on the application of plaintiffs, applicants or other parties ex parte — without notice to the other side. Before such an order is made the court must be satisfied that reasonable efforts have been made to effect personal service which have not been successful, and that there are reasonable prospects of the documentation coming to the attention of the defendant, respondent or other party by the proposed alternative method of service.8
[35] In this case, as already said, service of the originating documentation in the summary judgment proceeding was effected pursuant to an order for substituted service made by Associate Judge Osborne on 8 April 2016. Service of the bankruptcy notice and the originating documentation in the bankruptcy proceedings was effected
6 O’Shannessy v Dasun Hair Designers Ltd [1980] 2 NZLR 652 (HC).
7 High Court Rules 2016, r 15.10.
8 High Court Rules 2016, r 6.8.
pursuant to an order for substituted service made by Associate Judge Smith on 16 August 2016. Accordingly, it must be assumed that in both cases the Court was satisfied that an order for substituted service was justified. This application is not an opportunity to revisit the appropriateness of those orders. Nor, as I understood his argument, was Mr Ross inviting the Court to do so.
[36] It is common ground that in all three instances BNZ served the relevant documentation in strict accordance with the relevant order, emailing the same to the email address in the order and serving Jane Tiller.
[37] What, then, are the irregularities that Mr Ross submits taints service in each case?
[38]There are two.
[39] First, it is common ground that the email address which BNZ included in its application and which found its way into both orders ([email protected]) was not the Tiller’s correct email address (which was [email protected]). Possible explanations for this are canvassed in the affidavit evidence and counsel’s submissions. There are any number of possible explanations. There is no prospect of resolving the mystery here. However, in the end, it appears to me to be irrelevant precisely how the bank came to have an incorrect email address. It must be assumed, as I assume, that the Tillers did not receive the documentation by this means.
[40] Second, the affidavit evidence of Mr and Mrs Tiller and Ms Jane Tiller is to the effect that at the relevant time Mr and Mrs Tiller were estranged from their daughter. They say that she was disgruntled because she thought her parents had left the country to avoid the financial crisis facing the family business, leaving her to carry the can as it were, that she was not talking to them and that she did not pass on the documentation to them.
[41] As Mr Gordon submits, these points do not go to the issue of the irregularity or regularity of service. Service of the originating documentation in the summary judgment proceeding and the subsequent documentation was effected regularly. It was
done strictly in accordance with this Court’s orders. Of course, that does not mean that Mrs Tiller is precluded from pursuing this application. However, it does dictate the issues to which her challenge gives rise as explained earlier.
[42] The first issue is whether Mrs Tiller has a satisfactory explanation for her failure to enter a defence in the summary judgment proceeding, apply to set aside the bankruptcy notice or oppose BNZ’s application for her adjudication.
[43] Essentially, her explanation is that she had no opportunity to take any such steps because she did not receive the relevant documentation on any of those occasions.
[44] This issue therefore comes down to whether Mrs Tiller can establish that she did not receive the documentation.
[45] As already said, it must be accepted that the transmission of the documentation to the incorrect email address did not reach Mrs Tiller.
[46] Mrs Tillers evidence, supported by the evidence of Mr Tiller and Jane Tiller, is that because of an estrangement between the Tillers and their daughter, although the documentation was served on the latter, it was not forwarded on to the Tillers and they knew nothing of it.
[47] In my judgment, that evidence is lacking in credibility. I do not accept it. Here are my primary reasons for reaching that conclusion:
(a)It is evident from the whole background of dealings between BNZ and the Tillers, both before, but more particularly since, 2014, that the Tillers were well aware that the short term loan arrangements entered into between the parties were their company’s last opportunity, and that any breach of the terms of the same would result in the bank moving against the company and them. In the correspondence, they say as much. Thus, they must have been expecting the service of formal documentation at some stage;
(b)There is unchallenged evidence of exchanges between a process server engaged by BNZ and Jane Tiller. Jane Tiller clearly informed her parents of this, as it resulted in Mr Tiller communicating with the bank and providing details — correct or otherwise — of the Tiller’s email address. This indicates first that the Tillers were in touch with their daughter, and second that they knew to expect the originating documentation in the summary judgment proceeding;
(c)BNZ arranged for all three tranches of documentation to be served on Jane Tiller. In the circumstances, it is simply incredible that Jane Tiller did not at least inform her parents of the service of important papers or forward these onto them by email or otherwise. In either case, the Tillers must be taken to have been served;
(d)Following the orders adjudicating the Tillers bankrupt, they both filed statements of their financial positions with the Official Assignee, as they were obliged to do, promptly. At that stage, no issue was raised about the legitimacy or otherwise of the process that had led to their adjudication. If, as they now say, the Tillers had received no warning whatsoever, it seems astonishing that they did not raise the point at this stage, and apply for relief as necessary;
(e)Finally, there is the point that Mr Gordon makes and to which I have alluded already. This application by Mrs Tiller (particularly bearing in mind there is no corresponding application by Mr Tiller) comes long after her discharge, and immediately following Mrs Tiller’s failure in a bid to retain to herself, and to the exclusion of her creditors, the proceeds of the purchase and development of a property by her during her bankruptcy.
[48] For those reasons, I reject the evidence to the effect that the documentation referred to in this judgment was not brought to Mr and Mrs Tiller’s attention following service on Jane Tiller and that the Tillers did not have an opportunity to respond. Further, the aim of substituted service is not necessarily to ensure that the proceedings
definitely come to the attention of the debtor, only that there is a reasonable probability that they do so.9 In my view, the judgment was obtained regularly.
[49] In Keung v Official Assignee, Associate Judge Bell used the power of the Court under s 309(1) of the Insolvency Act to hold that an adjudication of bankruptcy should not have been made on the grounds it that the costs order it was based on was made in breach of natural justice.10 The bankruptcy ultimately stood for other reasons, but for present purposes the case demonstrates that a bankruptcy may be annulled on natural justice grounds. In that case, Mr Keung had not complied with a bankruptcy notice, was not represented at the bankruptcy hearing, and in his absence, was adjudicated bankrupt.
[50] The circumstances in Keung are very different from those in this case, where two orders for substituted service were made by the court in circumstances in which it was reasonable to conclude that the proceedings would come to the Tiller’s attention. More on point, in Fredrickson v Centurion, the court held that substituted service of bankruptcy proceedings did not constitute a defect warranting annulment even though there was some legitimate doubt in that case whether the papers were drawn to the attention of the party in question.11 Here, in my assessment there can be little doubt as to that.
[51] The second issue is whether, even if the Court accepted that Mrs Tiller did not receive any of the documentation, she would have had any viable defence to the summary judgment proceeding or basis for resisting any step in the subsequent bankruptcy proceedings. As Associate Judge Gendall (as he was) explained in Re Wanganui District Council, ex parte Page, an applicant for an order under s 309(1)(a) must establish either a defect in procedure, an abuse of process or a material fact that should have been but was not before the Court in which the judgment was obtained.12
9 Re Rewiri ex parte Commissioner of Inland Revenue HC Whangarei, 1 August 2002, B32/02 (2002) 20 NZTC 17,921 (2002) 16 PRNZ 415 at 15.
10 Keung v Official Assignee [2020] NZHC 32.
11 Fredrickson v Centuron Finance Ltd HC Auckland B259-01, 11 February 2005.
12 HC Whanganui CIV-2010-483-134 21 July 2011 at [16].
[52] There is as far as I am able to see no evidence at all that Mrs Tiller had an arguable defence available to her in the summary judgment proceeding, or tenable basis for resisting bankruptcy. This is reinforced by Mr and Mrs Tiller’s:
(a)failure to challenge the bank’s original claim when they were notified of this claim;
(b)frank and repeated acknowledgements at the time that there was no prospect of them paying any significant amount of their indebtedness; and
(c)apparent acceptance of their bankruptcy at the time of their adjudication.
Conclusion
[53]For these reasons, Mrs Tiller’s application is dismissed.
[54] Prima facie, the BNZ and the Official Assignee are entitled to their costs in relation to this application. However, as I have not heard argument as to costs, I reserve these. I expect counsel will be able to resolve whatever costs issues arise. However, if that is not possible then they may file memoranda in the usual way.
Associate Judge Johnston
Solicitors:
MinterEllisonRuddWatts, Wellington for judgment creditor Cathedral Lane Law, Napier for judgment debtor
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