Capital Precut Solutions Limited v Graham HC Wellington CIV-2011-485-137

[2011] NZHC 745

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-137

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of TONY GRAHAM

BETWEEN  CAPITAL PRECUT SOLUTIONS LIMITED

Judgment Creditor

ANDTONY GRAHAM Judgment Debtor

Hearing:         20 June 2011

(Heard at Wellington)

Counsel:         C. LaHatte - Counsel for Judgment Creditor

Mr. T. Graham - The Judgment Debtor in person

Judgment:      21 June 2011 at 3:00 PM

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 21 June 2011 at 3.00 pm under r 11.5 of the High Court Rules.

Solicitors:           Mike Garnham, Barristers & Solicitors, PO Box 10-240, Wellington

CAPITAL PRECUT SOLUTIONS LIMITED V TONY GRAHAM HC WN CIV-2011-485-137 21 June 2011

Introduction

[1]      Before the Court is an application by the judgment debtor, Mr Tony Graham, to set-aside a Bankruptcy Notice dated 1 February 2011 issued against him by the judgment creditor.

[2]      That Bankruptcy Notice relates to an order of this Court for costs totalling

$4,773.78 which was sealed on 15 December 2010.

[3]      The  application  to  set-aside  the  Bankruptcy  Notice  is  opposed  by  the judgment creditor, Capital Precut Solutions Limited.

[4]      In his application to set-aside the Bankruptcy Notice filed 23 February 2011 effectively relies on s 17 Insolvency Act 2006 and just and equitable grounds.  In the supporting affidavit of Mr Graham the judgment debtor dated 23 February 2011, he contends that he has a counterclaim for “monies due and owing by Capital Precut and David Buckthought to Tony Graham” of $5,625.00 which exceeds the amount of the judgment debt.  Those monies claimed to be owing to the judgment debtor as outlined in a tax invoice he has issued are for “plant and equipment” – Ezi Joint Machine Truss Jig for $5,000.00 plus GST of $625.00.

[5]      This  counterclaim  which  the  judgment  debtor  states  he  has  against  the judgment creditor has been the subject of a hearing before the Disputes Tribunal which, as I understand it, rejected the judgment debtor’s claim.  I am told that the judgment debtor has now appealed that decision to the District Court and in addition he has applied to the Disputes Tribunal for a re-hearing of the matter.   That re- hearing  before  the  Disputes  Tribunal  is  apparently  to  take  place  this  coming Thursday, 23 June 2011 at 2.45 pm.

[6]      Turning back to s 17 Insolvency Act 2006 which sets out general grounds for an application to set-aside a Bankruptcy Notice, this provides as follows:

17       Failure to comply with bankruptcy notice

(1)        A debtor commits an act of bankruptcy if –

(a)        a creditor has obtained a final judgment or a final order against the debtor for any amount; and

(b)        execution of the judgment or order has not been halted by a Court; and

(c)         the debtor has been served with a Bankruptcy Notice; and

(d)        the  debtor  has  not,  within the  time  limit  specified in subsection (4), -

(i)          complied with the requirements of the notice; or

(ii)         satisfied  the      Court  that  he  or  she  has  a crossclaim against the creditor.

(7)       In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that –

(a)       is  equal to,  or  greater than,  the  judgment debt or  the amount that the debtor has been ordered to pay; and

(b)       the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.”

(emphasis added)

[7]      Generally, to succeed under s 17 in an application such as the present one, the judgment debtor must satisfy the Court that he has a genuine triable counterclaim, set-off, or cross demand; and that it is such that he could not have set it up in the action in which the relevant judgment was obtained:  Clark v UDC Finance Limited [1985] 2 NZLR 636, 637.

[8]      This Court’s inherent jurisdiction to prevent abuse of process is not barred by s 17 Insolvency Act 2006.   This is clear from decisions such as  Re: Wise HC, Auckland, 21 June 1995, Master Kennedy-Grant, B.227/95; B228/95.  In that case at p 6 Master Kennedy-Grant concluded:

“(a)       I do have jurisdiction to grant relief to the debtors

“(b)     The jurisdiction is the inherent jurisdiction of the Court to control the abuse of its process;

“(c)       The grounds on which the jurisdiction may be exercised are:

“(i)       Procedural defect in the obtaining of the judgment on which the bankruptcy notice is based; and/or

“(ii)       The existence of arguable grounds of defence to the claim for which judgment was given;

“(d)     The  grounds  on  which  the  jurisdiction  may  be  exercised  may  extend beyond those stated in (d) to  any ground on which the  Court feels it necessary to intervene to prevent injustice but I make no finding on that point in this judgment;

“(e)      The correct procedure for invoking the inherent jurisdiction of the Court is not the filing of an affidavit under rule 41 but the filing of an interlocutory

application to set aside the bankruptcy notice on one of the grounds stated

in (c) above or, possibly, the broader ground stated in (d) above[.]”

Counterclaim, Set-Off or Cross Demand

[9]      In the present case, I say at the outset that I am satisfied, in terms of s

17(1)(d)(ii) Insolvency Act 2006, that the judgment debtor has no genuine counterclaim, set-off or cross demand that it could be said he was unable to use as a defence in the action in which the relevant judgment was given.

[10]     Here, the costs award of this Court which was the subject of the order in favour of the judgment creditor was made following the withdrawal of a statutory demand issued against the judgment creditor by the judgment debtor at the commencement of a hearing to set-aside the statutory demand held on 26 November

2010.

[11]     Those  matters  which  were  the  subject  of  the  statutory  demand  related precisely  to  the  judgment  debtor’s  present  claim  which  he  is  endeavouring  to advance through the Disputes Tribunal.   This relates to an invoice for equipment which the judgment debtor claims to have supplied to the judgment creditor.  Those are clearly matters  which, if they do provide  a genuine cross-claim against the judgment creditor were able to be used in the proceeding in which the costs order was made where the judgment debtor himself withdrew his statutory demand claim. I am satisfied therefore that s 17(1)(d)(ii) does not assist the judgment debtor here. He  has  been  unable  to  satisfy  the  Court  that  he  has  a  cross-claim  against  the judgment creditor which he could not have set up in the action in which the order against him has been made.

Abuse of Process

[12]     The next question to be considered is whether the judgment debtor can argue that the circumstance in which judgment was obtained against him in the High Court was an abuse of process.

[13]     Again, at the outset, I am satisfied there is little in this which might assist the judgment debtor.

[14]     The order of this Court on which the Bankruptcy Notice relies was made on

26 November 2010 and sealed on 15 December 2010.  No appeal against this order was made by the judgment debtor.   The order was properly made in all the circumstances and the judgment debtor is now long out of time for filing any appeal.

[15]     Nothing else was put before the Court by the judgment debtor to suggest that there had been any abuse of process in this case which would justify the Court applying its inherent jurisdiction to set-aside the Bankruptcy Notice.

Conclusion

[16]     For all the reasons outlined above, the application by the judgment debtor to set-aside the Bankruptcy Notice in question fails.

[17]     An order is now made that the judgment debtor has until 28 June 2011 to comply with the Bankruptcy Notice issued against him.

[18]     The judgment creditor having succeeded in opposing the present application I see no reason why costs should not be awarded in its favour.   Costs are therefore awarded to the judgment creditor against the judgment debtor on the present application on a Category 2B basis together with disbursements as fixed by the Registrar.

[19]     As a post-script to this judgment, I repeat that the application that has been before me was one to set-aside the Bankruptcy Notice.   It is not a substantive application to have the judgment debtor adjudicated bankrupt.  If such an application is made, then a formal consideration of whether or not proper grounds exist and whether an adjudication order ought to be made, will be considered at that point.

‘Associate Judge D.I. Gendall’