Body Corporate 378945 v Memelink
[2022] NZHC 890
•29 April 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-A-TARA ROHE
CIV-2020-485-721
[2022] NZHC 890
UNDER The Insolvency Act 2006 IN THE MATTER
of the bankruptcy (or proposal, as the case may be) of Harry Memelink
BETWEEN
BODY CORPORATE 378945
Plaintiff
AND
HARRY MEMELINK
Defendant
Hearing: 28 March 2022 Appearances:
C T C Bell for Plaintiff down to and including 28 March 2022; D Dewar since 28 March 2022
D Livingston for Defendant
A O’Connor for Body Corporate 68792 (a supporting creditor)Judgment:
29 April 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] On 25 June 2020, this Court delivered judgment in an appeal in which the judgment debtor, Mr Harry Memelink, sought to challenge a decision of the District Court declining him further time within which to bring a substantive appeal. The appeal was unsuccessful.1 Cooke J both declined the appeal and subsequently ordered that Mr Memelink pay the judgment creditor, Body Corporate 378945 (“the Body Corporate”), costs in the sum of $8,365.
[2]Initially, Mr Memelink did not pay those costs.
1 Memelink v Body Corporate 378945 [2020] NZHC 1461.
BODY CORPORATE 378945 v MEMELINK [2022] NZHC 890 [29 April 2022]
[3] The Body Corporate commenced enforcement proceedings. Having sealed the judgment, it obtained a bankruptcy notice from this Court on 3 December 2020. It says that this bankruptcy notice was served twice. Different service agents were involved (Mr Spriggs and Mr Desmond). The Body Corporate appears to have effected service twice as a result of a misunderstanding between its own solicitors and the solicitors acting for the supporting creditor, another body corporate (“BC 68792”). Following service Mr Memelink paid the costs that Cooke J had ordered him to pay, that is to say, the $8,365 referred to earlier.
[4] The bankruptcy notice as issued by the Court was in the orthodox statutory format. On the second page, it said that, in addition to the judgment debt, the judgment creditor was claiming costs of $828, including disbursements. Mr Memelink did not pay this these costs.
[5] It is Mr Memelink’s failure to pay this amount that has resulted in this bankruptcy proceeding which has occupied half a day of the High Court’s time, during which I heard witnesses for both parties cross examined and detailed submissions from counsel.
[6] The issue is not complicated. The Body Corporate says, and has filed affidavit evidence to the effect, that the bankruptcy notice that was served by its solicitors’ service agent, Mr Barry Spriggs, during the morning of 3 August 2021 was complete. Mr Memelink says that it did not include the second page, so that he did not know that the Body Corporate was claiming costs of $828.
[7] The parties being at odds as to whether the bankruptcy notice served by Mr Spriggs included the claim for costs, they are also divided on whether Mr Memelink was obliged to pay those costs and therefore whether Mr Memelink committed an act of bankruptcy when he failed to do so, and therefore whether the Body Corporate is entitled to the order it seeks.
[8] Having considered the affidavit evidence before the Court, the viva voce evidence of Mr Spriggs and Mr Memelink, both of whom were cross examined, and
counsel’s submissions, I am satisfied that Mr Spriggs served a complete bankruptcy notice on Mr Memelink.
[9] It is unnecessary to deal with the evidence at any length. I accept the unchallenged evidence of the Body Corporate’s solicitor’s secretary, Ms Lorna Fulcher, to the effect that the bankruptcy notice issued by the Registrar was complete. I accept Ms Fulcher’s evidence that she forwarded a copy of the email received from the Registrar with the bankruptcy notice attached to Mr Alwyn O’Connor, the solicitor acting for the supporting creditor, BC 638792, and that she has, since this proceeding was commenced, checked and confirmed that the email forwarded to Mr O’Connor contained the bankruptcy notice, with the intention that Mr O’Connor should take responsibility for arranging service of the same on Mr Memelink. I accept Ms Fulcher’s evidence that she subsequently instructed her firm’s usual service agent, Mr Michael Desmond, to serve the bankruptcy notice, left a complete copy of the same in an envelope at the firm’s reception for Mr Desmond to collect, and that Mr Desmond subsequently reported having served the same on Mr Memelink.
[10] I accept Mr O’Connor’s affidavit evidence that on receipt of the Body Corporate’s solicitor’s email attaching the email from the Registrar, he printed the complete bankruptcy notice and provided the same to his agent, Mr Spriggs, with instructions that it be served on Mr Memelink.
[11] I accept Mr Spriggs’ unchallenged evidence that on 3 August 2021 he left a copy of the bankruptcy notice on the doorstep of Mr Memelink’s business premises and observed Mr Memelink pick the same up. Indeed, it is not in dispute that Mr Memelink received this. I acknowledge that Mr Spriggs expressly says that he did not check whether the document was complete. But he also says that he is confident that the document that he served was the document that he received from Mr O’Connor by email. Finally, I record that it is common ground that Mr Desmond served a complete copy of the bankruptcy notice on Mr Memelink later the same day.
[12] As already said, Mr Memelink’s evidence is that the document that Mr Spriggs served on him did not include the second page containing the claim for costs of $828.
He goes on to say that he does not know whether the bankruptcy notice served on him by Mr Desmond was complete, as he did not read beyond the introductory section, believing that it was simply a copy of the earlier document. That is Mr Memelink’s explanation for why, having consulted with his solicitors, Livingston & Livingston, he paid the amount of the claim, $8,365, but did not pay the costs of $828.
[13] As already said, on the evidence, I am satisfied that Mr Spriggs served a complete copy of the document on Mr Memelink. I am not suggesting that Mr Memelink has been untruthful in giving evidence to the Court. There is no need to reach any view on that score. It seems to me to be overwhelmingly most likely that Mr Memelink simply overlooked the second page of the document and the costs claim.
[14] It is true that Mr Bell’s cross-examination of Mr Memelink pointed to some difficulties with his evidence. For a start, Mr Memelink admits to having been the subject of something like 30 bankruptcy proceedings in the past. It is difficult to imagine that Mr Memelink, an intelligent and resourceful man, would not have been alert to the fact that bankruptcy notices always include a claim in respect of costs. More pointedly still, under cross-examination Mr Memelink admitted that he had referred to the exact amount of the costs claim, $828, in correspondence at a time before, on his own evidence, he had become aware of the same. When this contradiction was put to him, he did not seem to have an answer.
[15] However, as I say, I do not need to reach any definitive view in relation to this. In the end, the point is completely dealt with by Mr Desmond’s unchallenged evidence of having served a complete copy of the bankruptcy notice later on 3 August 2021. Whether Mr Memelink read the entire document or not is not the point. Service is proved.
[16] Accordingly, in my view, the Body Corporate has established that the bankruptcy notice, originally dated 3 December 2020 and renewed on 3 September 2021, was properly served on Mr Memelink and that his non-compliance with the same, by failing to pay the costs component of $828 within 10 working days of service, constituted an act of bankruptcy on his part entitling the Body Corporate to apply for the order it seeks in this proceeding.
[17] That conclusion brings me to s 13 of the Insolvency Act, which is the provision that determines when the Court may or may not make an order bankrupting a debtor.
[18]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.
[19] In terms of s 13(a) the Court may only make an order where the judgment creditor can establish that he, she or it is owed at least $1,000 by the judgment debtor or, if two or more creditors join in the application, they are owed at least $1,000 collectively.
[20] The act of bankruptcy upon which the Body Corporate relies in this case is Mr Memelink’s failure to comply with the terms of the bankruptcy notice, but only to the extent that he failed to pay the costs claimed of $828.
[21] It is well settled that all s 13(a) requires is that, as at the date upon which the judgment creditor seeks adjudication, the judgment debtor owes him, her, it or them
$1,000. That debt need not be the judgment debt that was the subject of the bankruptcy notice.
[22] In this case, it is common ground that at the eleventh hour, but prior to the adjudication hearing, Mr Memelink paid to the judgment creditor the sum of
$11,906.13. This sum was made up of the $828 costs claim and a further sum of
$11,309.98 which was (more than) the balance of the debt owed by Mr Memelink to the Body Corporate as identified by Body Corporate Chair, Ms Julia Hennessey, in her updating affidavit of 8 March 2022.
[23] Thus, on the Body Corporate’s evidence, as at the date of adjudication, Mr Memelink was not indebted to it. Mr Bell said in the course of submissions that this payment had not been accepted by the Body Corporate, but there is no evidence of the Body Corporate having taken steps to reject or disclaim the payment.
[24] At the conclusion of the hearing an issue arose that counsel then acting for the parties, Mr Bell for the Body Corporate and Mr Livingston for Mr Memelink, had not addressed. The issue concerned exactly what s 13(a) means when it talks of two or more creditors joining in an application. I asked counsel to file memoranda in relation to that issue. Mr Livingston filed and served a memorandum dated 29 March 2022. Mr Dewar, who, by this stage, had taken over as counsel from Mr Bell, filed and served a memorandum dated 7 April 2022. Mr Livingston filed and served a short response later the same day.
[25] I will return to the legal issue in respect of which I sought further submissions. At this juncture, I record that Mr Dewar for the Body Corporate, no doubt anticipating the issue of whether or not the Body Corporate’s application could proceed having regard to the eleventh hour payment by Mr Memelink, took the opportunity to advance an argument to the effect that Ms Hennessey’s evidence was incorrect and that in fact there was still a debt exceeding $1,000 owed to the Body Corporate by Mr Memelink as at the date of adjudication. He invited the Court to reconsider the state of account between those parties. The short point, as Mr Livingston said in his reply, is that, on the Body Corporate’s own evidence, prior to the hearing the amount owed to the Body Corporate by Mr Memelink was $11,078.13. There is no suggestion in Ms Hennessey’s evidence that there is further debt. Mr Memelink paid more than that amount prior to the hearing, albeit at the eleventh hour (which may have consequences for costs). The result is that Mr Livingston was entitled to submit, as he does, that, as at the date of the hearing, the Body Corporate, could not establish that Mr Memelink was indebted to it in any sum, never mind a sum in excess of $1,000. It does not appear to me to be open to counsel to respond to that in a memorandum, which was sought for an entirely different purpose, by effectively contradicting the Body Corporate’s own evidence.
[26] In my judgment, the Court must accept that as at the date of adjudication the Body Corporate could not establish an indebtedness to it on Mr Memelink’s behalf which would satisfy the terms of s 13(a).
[27] The only residual issue is whether the Body Corporate’s application may nevertheless be successful, not on account of debts owed to it, but to BC 68792 which has filed a notice as a supporting creditor.
[28] That, as already said, turns on the issue of whether, when s 13(a) refers to two or more creditors joining in an application that is wide enough in its scope to include the applicant and a party that has done no more than file notice of its claim.
[29] For context it may be helpful to mention that in any bankruptcy proceeding the principal parties will be the applicant who claims to be a creditor of the respondent and who seeks an order adjudicating the respondent bankrupt on one or more of the grounds set out in the Insolvency Act. In the overwhelming majority of cases the applicant’s contention will be based on having secured a judgment against the respondent and having then served a bankruptcy notice demanding payment of that judgment (together with costs) coupled with an assertion that the respondent did not comply with the bankruptcy notice, thereby committing an act of bankruptcy and conferring jurisdiction on the Court to make the order sought. That of course is the position in this case. Section 44 of the Insolvency Act provides that if at the hearing the applicant does not proceed (which generally happens because the respondent debtor pays up) another party who or which claims to be owed at least $1,000 by the respondent may apply to be substituted for the applicant. The convention is that a party who wishes to be able to take advantage of this option files and serves a notice identifying themselves as a supporting creditor.
[30] In his submissions on this issue Mr Livingston contended that a supporting creditor such as BC 68792 in this case cannot be treated as joining in an application. He advanced that contention on a number of very closely interrelated bases. I refer only to the primary arguments advanced, and not in the order in which Mr Livingston advanced them.
[31] Mr Livingston submits that there is no precedent for treating an applicant such as the Body Corporate and a supporting creditor as having joined in an application for the purposes of s 13(a). He refers to a number of cases that have touched on the point and submits — correctly it appears to me — that the courts in those cases proceeded on the assumption that an applicant and a supporting creditor have not joined in the former’s application.2 Finally, in terms of precedent, Mr Livingston mentions that the issue was raised in Memelink v Haines3 but the Court of Appeal there saw no need to address it as they overturned my judgment on a more elementary point.
[32] Mr Livingston submitted that it would be wrong in principle to treat an applicant and a supporting creditor as joint applicants because they are in fundamentally different positions before the Court. The applicant is a party to the proceeding. As such it has — or should have — complied with the requirements of the legislation: have a basis for proceeding; commenced the proceeding; pleaded the claim; and provided evidence. A supporting creditor on the other hand has taken none of those steps. All it has done is rely on a well-established convention by notifying the Court and the parties of its intention to appear at the hearing, and that if the applicant does not proceed it may apply to be substituted. If it does, and the Court makes an order, it will also direct the supporting creditor to comply with the obligations of an applicant already referred to. In such circumstances, Mr Livingston’s contention is that a supporting creditor only becomes a party when an order for substitution is made under s 44. Prior to that, Mr Livingston submits, a supporting creditor is not a party to the proceeding, and cannot be treated as joining in the application.
[33] Mr Livingston’s argument is that the reference in s13(a) of the Insolvency Act to joint applications is to cover the position where two parties have commenced proceedings and these are being heard together.
2 Robertson v Wojakovski [2020] EWHC 2737 (Ch) at [15]; Re Child ex parte Diners Club (NZ) Limited HC AK CIV2008-404-4263 10 December 2009 at [19]; Re Strategic Finance Limited (in rec and in liq) ex parte Moss [2013] NZHC 2455; and Re Bruns, ex parte Trust Bank Central Ltd (1992) 6 PRNZ 382.
3 Memelink v Haines [2021] NZCA 116 at [52].
[34] In his reply, Mr Dewar accepted that there was no precedent for treating an applicant and a supporting creditor as having joined in the former’s application. Indeed, in the discharge of his obligations as an officer of the Court, Mr Dewar helpfully referred to additional authority, over and above the cases Mr Livingston had referred to, indicating that the courts have not treated supporting creditors as parties who are joining in the application.4
[35] However, Mr Dewar submitted that the orthodox position was “… bad policy, for reasons set out below, as logically it means that any insolvent creditor can stave off insolvency …” by doing exactly what Mr Memelink has done in this case; paying the applicant at the eleventh hour.
[36] I am not sure that it is correct to describe this as “policy”. It is the law. It may well have the consequence described by Mr Dewar, but it should be remembered that such consequences will only arise in very limited cases such as this where the judgment creditor proceeds despite the debt being paid and therefore where no supporting creditor may apply to be substituted.
[37] Mr Dewar developed his argument by reference to Mr Livingston’s submissions, identifying what he suggested were weaknesses in the same. In doing so he did not directly tackle the fundamental point which I have tried to describe.
[38]Mr Dewar’s principal argument was advanced in the following terms:
16.3 Our submission is that filing a notice of appearance and tendering information the Court, including information as to judgment debts, gives other creditors standing as having chosen and elected to join the application. Such creditors are often awarded costs such as occurred in this Debtor’s first bankruptcy in August of 2018.
[39] The fact that the debt of the supporting creditor in this case relied on in its notice of appearance is partly a judgment debt is a happenstance of this case and is irrelevant to the issue. In the vast majority of cases supporting creditors rely on debts which are not judgment debts.
4 Re Havenleigh Global Services Ltd, ex parte Henderson [2010] NZAR 714 (HC).
[40]Mr Dewar then describes the process and submits that:
16.8 It therefore seems logical that those Creditors who have some standing in the cases should then be seen to have “joined” the original application, such as Body Corporate 68792 has in this instance.
[41] I do not see that. Supporting creditors do not have standing as parties in the proceeding. They have standing to appear and make submissions (which, as Mr Livingston observes, not infrequently involves opposing the order sought by the applicant in preference for another course) and in certain circumstances to apply for an order that they be substituted for the applicant. In my view, only in the event of such an order being made do they become parties and capable of joining in an application.
[42] Finally Mr Dewar urges the Court to “consider the scheme of the Insolvency Act” and in particular the overarching policy which he submits — and I agree — is to protect to the maximum extent the creditors of the judgment debtor as a whole.
[43] I have endeavoured to keep that in mind. However, in the end, the view I have reached is that it would do seriously violence to the language of s 13(a) of the Insolvency Act to treat a supporting creditor as joining in the application and I reject the contention that that course is open to the Court. Whilst I have some sympathy with the position advanced on behalf of the Body Corporate by Mr Dewar, in the end it appears to me that if the orthodox position is to be changed it would be preferable that that should be done by the legislature or by an appellate court.
[44] In the end the harm or injustice against which the Body Corporate rails is simply Body Corporate 68792 having to commence its own enforcement proceeding.
Conclusion
[45]For those reasons the application is dismissed.
[46] As to costs, the way in which matter unfolded, in particular the Court’s conclusion in relation to the issue of service and the fact that the debt claimed by the Body Corporate was not paid until the eleventh hour, are important costs issues in this
case. I have not heard from counsel as to costs. I reserve them. Counsel may submit memoranda in relation to costs in the usual way. Any memorandum from the judgment debtor is to be submitted within five working days. Any memorandum from the judgment creditor is to be submitted within a further five working days.
Associate Judge Johnston
Solicitors:
Thomas Dewar Sziranyi Lett, Lower Hutt for plaintiff Livingston & Livingston, Wellington for defendant
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