Complete Construction Ltd v Siemer
[2019] NZHC 2273
•12 September 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-0423
[2019] NZHC 2273
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of VINCENT ROSS SIEMER
BETWEEN
COMPLETE CONSTRUCTION LIMITED
Judgment Creditor/Respondent
AND
VINCENT ROSS SIEMER
Judgment Debtor/Applicant
Hearing: 2 September 2019 Appearances:
E W Davies for the Judgment Creditor/Respondent No appearance for the Judgment Debtor/Applicant
Judgment:
12 September 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 12 September 2019 at 3.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Skinners Law, Auckland
Copy to:
Mr V Siemer
COMPLETE CONSTRUCTION LTD v SIEMER [2019] NZHC 2273 [12 September 2019]
[1] Mr Siemer applied to set aside a bankruptcy notice served on him by the respondent (Complete) in March 2019 (the application). When he filed the application Mr Siemer was subject to an order made by the Court of Appeal under s 88B of the Judicature Act 1908 preventing him from filing any proceeding without the leave of a judge (the banning order),1 and leave to file the application was refused on 14 August 2019. The principal issue to be decided now is whether the effect of the banning order and the failure to obtain leave is that the application was a nullity, void from the moment it was filed, or whether it is to be treated as an application that remained valid until leave to file it was refused. A decision on that issue will determine whether or not the three month period within which Complete could file an application for a bankruptcy adjudication order based on Mr Siemer's failure to comply with the bankruptcy notice 2 has expired. The second issue is whether Complete is entitled to reasonable solicitor/client costs.
Background
[2] Complete obtained a default judgment against Mr Siemer in the District Court at Auckland, on 8 February 2019. The amount for which judgment was entered was
$7,676.94.
[3] On 13 March 2019 Complete issued a bankruptcy notice and served it on Mr Siemer. The effect of the bankruptcy notice was that if Mr Siemer did not either comply with the notice or apply to this Court to set it aside within 10 working days, he would commit an "act of bankruptcy", which would entitle Complete to apply immediately under the Insolvency Act 2006 (the Act) to have him adjudicated bankrupt.3
[4] Mr Siemer did apply to set the bankruptcy notice aside. On 1 April 2019 he filed a document described as "Application for Set-Off and Counterclaim", with two supporting affidavits. It was common ground between the parties that this document was, in all respects apart from Mr Siemer's failure to obtain leave to file the document, a sufficient application to set aside the bankruptcy notice.
1 Siemer v Attorney-General [2016] NZCA 43 at [48].
2 Insolvency Act 2006, s 16.
3 Insolvency Act 2006, ss 17 and 13.
[5] Complete filed a notice of opposition on 15 April 2019, in which it relied substantially on its status as a claimant under the Construction Contracts Act 2002 (the CCA) who had obtained a judgment based on payment claims to which the payer (in this case Mr Siemer) had failed to respond.4
[6] The application came before me in the bankruptcy list on 2 May 2019. Shortly before the hearing, I ascertained that Mr Siemer was the subject of the banning order. Mr Siemer confirmed that that was the position when the case was called. I advised that I would consider the matter, and issue a Minute on the question of whether Mr Siemer was entitled to file the application without having first obtained leave.
[7] On 7 May 2019 I issued a Minute in which I expressed agreement with the judgment of Associate Judge Bell in Westpac New Zealand Ltd v Boulton, where the Associate Judge found that an application to set aside a bankruptcy notice constituted the commencement of a new proceeding under the High Court Rules 2016.5 However, I noted in my Minute that there were questions as to whether the banning order remained in force following the replacement of the Judicature Act 1908 by the Senior Courts Act 2016, which came into effect on 17 March 2017, and if so, whether Mr Siemer could obtain leave retrospectively. I directed that Mr Siemer was to obtain any necessary leave to continue the application, and if leave was granted, file and serve any reply affidavits and written submissions by 15 August. A provisional fixture for the hearing of the application was to be scheduled after that. I directed that any application Mr Siemer might make for retrospective leave was to be referred to a Justice of the Court for determination.
[8] On 17 June 2019 I issued a further Minute, drawing to the attention of Mr Siemer and counsel the decision of Venning J in Rafiq v Whata & Ors, in which the Judge concluded that orders made under s 88B of the Judicature Act 1908 (the section under which the banning order was made against Mr Siemer) are to be regarded as continuing in force for a period of five years from 1 March 2017.6 I stated
4 Certain provisions of the CCA entitle a claimant (such as Complete) to enforce as a debt payment claims to which the payer has not responded with a timely payment schedule setting out any defences or objections to the claims.
5 Westpac New Zealand Ltd v Boulton [2014] NZHC 693 at [12] and [27].
6 Rafiq v Whata & Ors [2019] NZHC 1193.
in my Minute that the effect of the judgment in Rafiq was that Mr Siemer would need to apply for and obtain the leave of this Court to continue with the application. In accordance with my earlier Minute, any such leave application was to be made to a Justice of the Court.
[9] A provisional fixture for the hearing of the application was made for 2 September 2019. Mr Siemer had been overseas in the middle part of the year, and it was not until 12 August 2019 that he filed a memorandum in which he submitted that leave could and should be granted for him to continue with his application. That memorandum was referred to Jagose J, and on 14 August 2019 the Judge issued a Minute refusing Mr Siemer leave. His Honour confirmed that the application was subject to the banning order, as a "civil proceeding … instituted by [Mr Siemer]"7, but concluded that Mr Siemer had not shown that he had a prima facie ground for the proceeding.
[10] Following the order made by Jagose J on 14 August 2019, the Registrar referred to Associate Judge Bell the question of whether the fixture for 2 September 2019 would still be required. In a Minute dated 22 August 2019 the Associate Judge directed that the fixture should be maintained. His Honour referred to r 24.10 of the High Court Rules 2016, which provides that when a judgment debtor applies to the Court to set aside a bankruptcy notice the time for the judgment debtor to comply with the bankruptcy notice is extended until the setting aside application has been determined. There was a question as to whether r 24.10 could apply at all to an application for a setting aside order purportedly filed by a banned litigant who had not obtained leave to file it. If r 24.10 did not apply, Mr Siemer (not having paid the amount claimed in the bankruptcy notice) would have committed an act of bankruptcy in April 2019, when the 10 working days allowed for payment expired.
[11] Before the order of Jagose J made on 14 August 2019 was notified to counsel and Mr Siemer, both had filed written submissions for the 2 September 2019 hearing.
7 Judicature Act 1908, s 88B(1).
The issues
[12]There are only two issues:
(i)Does r 24.10 of the High Court Rules apply to the application, notwithstanding Mr Siemer's failure to obtain leave before the application was filed?
(ii)Regardless of the outcome on issue (i), is Complete entitled to solicitor/client costs on the application?
The parties' submissions
[13] Mr Siemer filed written submissions, but they were filed before the order was made by Jagose J declining him leave. Mr Siemer then filed an affidavit sworn on 28 August 2019, in which he repeated certain submissions relating to the merits of the application. He referred to the amount of the District Court judgment as small, and said that he had no other unpaid creditors. He submitted that there is no suggestion that the District Court debt was not being paid because he was insolvent. Mr Siemer also submitted that there had been a breach of natural justice when Jagose J made the order on 14 August 2019 refusing him leave, without apparently having considered Mr Siemer's first affidavit.
[14] Mr Siemer said in his affidavit that he would not appear at the hearing scheduled for 2 September for the determination of his set-off claim and defences "when Jagose J has at late hour barred both". He submitted that the hearing could not possibly serve the purpose for which it was originally scheduled.
[15] For Complete, Mr Davies submitted that the application was sound, and that r 24.10 applied to it notwithstanding Mr Siemer's failure to obtain leave to file the application. He noted that the application was filed in time and with supporting affidavits, in circumstances where there was limited time for Mr Siemer to have made any ex parte leave application. He noted that in my Minute of 7 May 2019 I had determined that the fairest course was to direct the Registrar to allocate a provisional hearing date for the application.
[16] Mr Davies submitted that, for the purposes of r 24.10, the application was not determined until (at earliest) 14 August 2019, when Mr Siemer was refused leave.
[17] On the issue of costs, Mr Davies submitted that Complete is entitled to solicitor/client costs under s 59(2)(a)(ii) of the CCA. Complete asks for costs of
$12,055.19 under that section.
Discussion and conclusions
[18]The banning order materially provided:
[Mr Siemer] must obtain the leave of the Court before commencing or continuing any proceeding in the High Court or any inferior court.
[19] On 14 August 2019 Jagose J refused to grant leave to Mr Siemer to file the application, and as far as I am aware there has been no attempt to appeal or set aside the order of Jagose J. In those circumstances I do not consider that I have jurisdiction to entertain Mr Siemer's contentions of breach of natural justice, or decline to give effect to the Judge's order on any other basis.
[20] On the principal issue of whether the application was a nullity, arguments might be made that it was. The order made by the Court of Appeal required that Mr Siemer had to obtain any necessary leave before he commenced any proceeding, and he did not do that. And arguably banned litigants should not be permitted to benefit 8 from delays occurring between the time they commence a proceeding for which no leave has been given, and the eventual refusal of leave. Also, it might be said that one of the principal purposes of banning orders (avoiding the need for defendants or respondents to incur expense and time responding to vexatious or frivolous proceedings) could be undermined if r 24.10 were construed as "keeping alive" an application to set aside a bankruptcy notice that was filed by a banned litigant in breach of his or her banning order.
[21] Against those considerations, I think this was an unusual situation. A banned litigant receiving a bankruptcy notice might consider that he or she was simply
8 In this case, by obtaining more time to satisfy the bankruptcy notice than Mr Siemer would have had if he had not filed the application.
defending himself/herself by applying to set aside the bankruptcy notice, and it appears that that is what happened here. The application was filed and served in time, and the need for leave was not appreciated until I raised the point at the hearing on 2 May 2019. And when Jagose J dealt with the issue of leave on 14 August 2019 he did not refuse the leave application because it was out of time; on the contrary, His Honour dealt with it on its merits, addressing the statutory questions of whether the application was an abuse of the Court's process and (if not) whether Mr Siemer had a prima facie ground for the application. His Honour concluded:
[6] There is thus no prima facie ground for the proceeding. I therefore refuse leave.
[22] In those circumstances, I think the right course is to treat the orders of Jagose J as having impliedly accepted that leave to file the setting aside application could be sought after it had been filed, and to treat the failure to obtain leave before the application was filed as an irregularity that did not render the application a nullity. Jagose J did not formally dismiss the setting aside application, but the refusal of leave did have the effect of determining the application in Complete's favour. I accordingly direct that the application is to be regarded for the purposes of r 24.10 of the High Court Rules as having been determined against Mr Siemer on 14 August 2019.
[23]Turning to the question of costs, s 59 of the CCA materially provides:
59 Consequences of not complying with adjudicator’s determination under section 48(1)(a)
(1)The consequences specified in subsection (2) apply if a party to the adjudication fails, before the close of the relevant date, to pay the whole or part of the amount determined by an adjudicator.
(2)The consequences are that the party who is owed the amount (party
A) may do all or any of the following:
(a)recover from the party who is liable to make the payment (party B), as a debt due to party A, in any court,—
(i)the unpaid portion of the amount; and
(ii)the actual and reasonable costs of recovery awarded against party B by that court:
…
(4)In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of a party unless it is satisfied that the circumstances referred to in subsection (1) exist.
(5)In this section, relevant date means—
(a)the date that occurs 2 working days after the date on which a copy of the relevant determination is given to the parties to the adjudication under section 46(3); or
(b)if the adjudicator determines a later date under section 48(3)(a)(ii), that later date.
[24] Complete is clearly entitled to costs, but I am not satisfied that it is entitled to costs on a solicitor/client basis as sought. I acknowledge that such costs were awarded in similar circumstances in BRC Ltd v Patel,9 but there appears to have been no consideration in that case of the question of when the process of "recovery as a debt due" should be considered to have come to an end — do the words "by that court" in s 59(2)(a)(ii) of the CCA mean that the payee's entitlement to actual costs comes to an end at the point he or she obtains judgment for the amount due?
[25] The other cases referred to by Mr Davies do not in my view assist. My decision in Watts & Hughes Construction Ltd v Complete Siteworks Ltd 10 was not one where judgment had been entered following an adjudication: the first court to consider costs was the court dealing with the application to set aside the statutory demand. And Body Corporate 200012 v Naylor Love Construction Ltd 11 was concerned with an appeal from a District Court award of costs on an application to register an adjudicator's decision in the District Court under a different provision of the CCA (s 59(2)(c)), which makes no provision for recovery of the payee's actual and reasonable costs. Kariiti Ltd v Donovan Drainage & Earthmoving Ltd was closer to the present situation, as it involved a judgment debtor's application to stay a liquidation proceeding,12 but there was little discussion on the point with which I am now concerned. Associate Judge Bell simply said:13
9 BRC Ltd v Patel HC Wellington 11 November 2011, CIV-2011-485-1322 and CIV-2011-485-1323, at [38] – [39].
10 Watts & Hughes Construction Ltd v Complete Siteworks Ltd [2014] NZHC 2600.
11 Body Corporate 200012 v Naylor Love Construction Ltd [2018] NZHC 569.
12 Kariiti Ltd v Donovan Drainage & Earthmoving Ltd HC Whangarei CIV-2010-488-000613 19 November 2010.
13 At [36].
Under s 59(2)(a)(ii) of [the CCA], the plaintiff is entitled to recover its actual and reasonable costs of recovering the sums payable under the adjudication. That includes its costs in opposing the stay application.
[26] In the end, I think the issue is whether Parliament intended a payee under the CCA who has obtained judgment for the amount owed to him or to be in a better position with regard to his or her costs of enforcing the judgment, than any other litigant who has obtained a judgment. If such were the intention, I think it would have been made clear in the CCA itself, but in my view it was not.
[27] Under s 59(2)(a), "recovery" is something that happens in a court, and impliedly involves obtaining a judgment for what is recovered. The provision allowing for recovery of actual and reasonable costs contemplates judgment for those costs being entered by "that court", meaning the same court that entered judgment for the amount of the adjudication order. In this case, that was the District Court, not this Court. No provision of the CCA specifically authorising the recovery of full costs of post-judgment enforcement steps has been drawn to my attention.
[28] The view that such recovery was not intended seems consistent with the judgment of Duffy J in Auckland Waterproofing Ltd v TPS Consulting Ltd, where the Judge said:14
[46] Parliament has provided that payees may recover unpaid payment claims that come within s 23 [of the CCA] in any Court and can recover the actual and reasonable costs of recovery awarded by the Court hearing the recovery process; s 23(2)(a)(ii). The [CCA] does not make provision for recovery of s 23 debts in any other fashion.
[29] While that passage referred to the recovery of costs under s 23 of the CCA, which is applicable where there has been no adjudication order, I do not see why it would not apply equally to a "recovery process" under s 59(2) of the CCA.
[30] I do not consider that the policy factors that persuaded Parliament that successful CCA claimants should recover their (reasonable) solicitor/client costs of obtaining judgment 15 have the same force after judgment has been obtained. Once there is a judgment that has not been stayed, execution processes are available
14 Auckland Waterproofing Ltd v TPS Consulting Ltd (2007) 18 PRNZ 797 at [46].
15 As discussed by Duffy J in Auckland Waterproofing Ltd v TPS Consulting Ltd, at [50] – [61].
immediately, and the prospect of long delays in obtaining payment should no longer be a significant a factor. Nor are the costs of basic enforcement steps 16 likely to be as high as the costs of obtaining a judgment, at least where the proceeding was defended. The policy drivers for full costs recovery (protecting cashflow in the construction industry, inter alia by deterring payers from withholding payment of small amounts that might otherwise be uneconomic for payees to pursue) are arguably no longer there.
[31] So I do not consider that a CCA claimant who holds a judgment for the amount of his or her claim has an entitlement to reasonable solicitor/client costs on post-judgment enforcement steps, particularly where the enforcement step involves bankruptcy adjudication proceedings. Bankruptcy proceedings are concerned with more than the mere recovery of the debt owing to the creditor; they are concerned with the status of the judgment debtor, and the Court may be required to consider factors such as the bankrupt's circumstances and the public interest. But I do not see why in an appropriate case the nature of the debt (in this case, based on a CCA claim) and the debtor's conduct (application for leave to challenge the bankruptcy notice lacking merit) cannot be taken into account in the exercise of the Court's ordinary discretion in making a costs award. I would ordinarily have awarded costs to Complete on a 1B basis where the amount involved was as small as it is in this case, but the lack of merit factor persuades me that the interests of justice will be better met by an award of Category 2 costs. I accordingly make an order for costs in favour of Complete on a 2B basis, plus disbursements as fixed by the Registrar. Those costs will include Complete's costs of preparing written submissions for the hearing on 2 September 2019, and for Mr Davies' appearance on that date.
Associate Judge Smith
16 For example, obtaining a warrant to seize property under s 133 of the District Court Act 2016.
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