Convendium Limited (in liquidation) v Monnery

[2020] NZHC 838

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-001906

[2020] NZHC 838

UNDER

the Insolvency Act 2006

IN THE MATTER OF

the bankruptcy of JULIE ANN MONNERY.

The Official Assignee abiding decision of the Court

BETWEEN

CONVENDIUM LIMITED (IN LIQUIDATION)

Judgment Creditor

AND

JULIE ANN MONNERY

Judgment Debtor

CIV-2019-404-001907

UNDER

The Insolvency Act 2006

IN THE MATTER OF

the bankruptcy of PAUL MARK MONNERY. The Official Assignee abiding decision of the Court

BETWEEN

CONVENDIUM LIMITED (IN LIQUIDATION)

Judgment Creditor

AND

PAUL MARK MONNERY

Judgment Debtor

Hearing:

On the papers

Appearances:

D Chisholm QC for Judgment Creditor

C R Carruthers QC for Judgment Debtors

Judgment:

29 April 2020

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

CONVENDIUM LTD (IN LIQ) v MONNERY [2020] NZHC 838 [29 April 2020]

Introduction

[1]    On 12 March 2020, I adjudicated both the judgment debtors, Mr and Mrs Monnery, bankrupt. At that time there was no appearance by or on behalf of either of them.

[2]    Mr and Mrs Monnery now apply to set aside the orders adjudicating them bankrupt in reliance on ss 42 and 309 (Annulment) of the Insolvency Act 2006. They say the orders for adjudication were improperly made because the Court was not advised at the time of those orders that Mr and Mrs Monnery had applied for a stay of execution of the judgment debt, for which a hearing date had been granted, or that a hearing date had also been allocated for their appeal against the judgment debt.1

[3]    The judgment creditor, Convendium Ltd (in liquidation) (Convendium), opposes the applications for annulment. It says Mr and Mrs Monnery failed to comply with the directions of the Court in respect of the stay application; failed to file and serve an appearance on the adjudication applications in accordance with r 24.18 of the High Court Rules 2016; and failed to appear at the call of the adjudication applications.

[4]    The Official Assignee has been served with the applications and abides the Court’s decision.

[5]    The critical issue is whether I should now determine on the papers received whether orders for annulment should be made on the grounds that not all the relevant facts were before me at the time I made the adjudication orders or, as Convendium submits, make further timetabling directions for the filing of evidence before determining the applications.

Factual background

[6]Mr and Mrs Monnery (the Monnerys) were directors of Convendium.

1      The stay application had been scheduled for a hearing in this Court on 1 April 2020 and the appeal to the Court of Appeal is scheduled to be heard in June 2020.

[7]    On 27 August 2019, Convendium obtained summary judgment against the Monnerys in the sum of $515,654.64 (inclusive of interest), with costs to be agreed between the parties.

[8]    On 20 September 2019, the Monnerys lodged an appeal against that summary judgment debt to the Court of Appeal.

[9]    On 25 September 2019, the Monnerys were served with bankruptcy notices and failed to respond within the requisite 10 working days.

[10]   On 17 October 2019, the Monnerys applied for a stay of execution of the summary judgment proceedings, pending their appeal.

[11]   Convendium applied for adjudication orders on 13 December 2019. The Monnerys were served with those applications on 14 January 2020.

[12]   In late January 2020, there was an exchange of email correspondence between the Registrar of the Court of Appeal and counsel and their respective solicitors in relation to the allocation of a fixture date for the Court of Appeal hearing. During that email correspondence there was some discussion about whether agreement could be reached that the stay of execution hearing (then scheduled for 1 April 2020) could be dispensed with on the basis that the appeal hearing would take place at a similar time and therefore avoid the need for a separate stay hearing.

[13]   In accordance with the timetable set by the Court in relation to the stay of execution, the submissions from the Monnerys were due to be filed and served on 26 February 2020. However, the Monnerys failed to comply with that timetable direction and to date have not filed any submissions.

[14]   As noted, the application for a stay of execution was allocated a fixture for hearing on 1 April 2020 (which has since been vacated), and the appeal hearing in the Court of Appeal is scheduled for the week commencing 22 June 2020.

[15]   In a telephone conference minute dated 19 March 2020, I directed that the papers for this proceeding were to be served on the Official Assignee and that

Convendium should file submissions on the issue of annulment within seven days of that minute.

Relevant legal principles

[16]Section 309(1) of the Insolvency Act 2006 reads:

(1)        The Court may, on the application of the Assignee or any person interested, annul the adjudication if –

(a)the Court considers that the bankrupt should not have been adjudicated bankrupt; or

(b)the Court is satisfied that the bankrupt's debts have been fully paid or satisfied and that the Assignee's fees and costs incurred in the bankruptcy have been paid; or

(c)the Court considers that the liability of the bankrupt to pay his or her debts should be revived because there has been a substantial change in the bankrupt's financial circumstances since the date of adjudication; or

(d)the Court has approved a composition under subpart 1 of Part 5.

[17]Section 309(4) reads:

(4) In the case of an application for annulment on the ground that the adjudication should not have been made because of a defect in form or procedure, the Court may, in addition to annulling the adjudication, exercise its powers under section 418 to correct the defect and order that the application for adjudication be reheard as if no adjudication had been made.

[18]   The jurisprudence makes clear that an order for annulment can be made under s 309(1)(a) where there was some defective procedure, abuse of process or where subsequent evidence shows that not all the relevant facts were before the Court making the adjudication order, provided that this would also have affected the outcome.2

2      See, for example, Hunter v Commissioner of Inland Revenue (2000) 19 NZTC 15,722 (HC) at [58]; and Holdgate v Blocassa Ltd [2007] NZCA 132 at [21]–[22].

Analysis and decision

[19]   I reject the submission of Convendium that immediately determining the applications on the papers would be procedurally incorrect and a breach of natural justice.

[20]   All parties have now had the opportunity to file submissions addressing the narrow issue of whether an annulment order should be made on the grounds that not all the relevant facts were before me at the time I made the adjudication orders. Convendium’s opposition to the applications is clear from its notice of opposition, affidavits and memoranda filed and I see no purpose of deferring determination of the applications pending further evidence and argument. That would be cumbersome and inefficient, particularly given the very discrete and narrow issue before me.

[21]   In my minute of 19 March 2020, I expressly stated that the Court would determine the annulment application on the papers following the opportunity for Convendium to file submissions. In applying the principles of natural justice, a sense of proportion is required. Also, in determining the issue of annulment at this time, I note I am not predetermining the outcome of the stay application. Both the appeal and stay remain live issues.

[22]I now address the merits of the annulment application.

[23]   I accept the submission of Convendium that an appeal does not prevent a judgment creditor from taking enforcement steps to recover its judgment debt. The stay jurisdiction is not automatic and judgment debtors risk bankruptcy by failing to pay or secure a judgment debt.

[24]   I also accept that the Monnerys have failed to comply with this Court’s directions in relation to the stay application. They failed to file their submissions by 26 February 2020 as directed and failed to file and serve an appearance on the adjudication applications pursuant to r 24.18 of the High Court Rules.

[25]   However, it seems clear from the email correspondence between counsel that there was a breakdown in communication and that senior counsel for the Monnerys

had expected that there would be no issue with deferring the bankruptcy proceedings pending the determination of the stay application scheduled for 1 April 2020. Much of the relevant email correspondence between the parties appears to be focused on obtaining an appeal date and whether, depending on the date allocated, there would be any utility in having a hearing for the stay application.

[26]   Had I been appraised of all the relevant facts at the time I made the adjudication orders in the Bankruptcy List on 12 March 2020, it is likely that I would have adjourned the proceedings pending determination of the stay application. The hearing on 12 March 2020 was the first call of the applications and at that stage, the then- scheduled stay application hearing of 1 April 2020 was imminent. I acknowledge that the judgment debtors had not, by that time, filed their submissions on the stay application. However, while that factor may have been relevant, it would not have been fatal to any adjournment. The sensible and logical approach would likely have been to adjourn the proceeding. I find therefore that there is a proper basis to grant an annulment of both bankruptcy adjudications on the grounds set out in s 309(1)(a). The Monnerys should not have been adjudicated bankrupt on 12 March 2020.

[27]   That does not excuse their failure to file submissions in relation to the stay application as directed by the Court. It is unlikely that the Court will tolerate any further timetable breach by the judgment debtors in relation to either the bankruptcy proceedings or the stay and appeal proceedings.

[28]   In granting the applications for annulment, I also make orders in accordance with ss 309(4) and 418, as follows:

(a)The applications for adjudication are to be re-heard as if no adjudications had been made and are to be called again in the Bankruptcy List;

(b)The Monnerys are apply to the Court for a re-scheduling of the stay application (CIV-2019-404-000505) as soon as reasonably practicable (any further failure to comply with relevant timetable directions will be relevant to any future disposal of the bankruptcy proceedings); and

(c)The Monnerys are to file and serve their submissions on the stay application (CIV-2019-404-000505) by 15 May 2020.

[29]   I acknowledge that due to the lapse of time it may no longer be possible to reschedule the stay application hearing in advance of the Court of Appeal hearing. Counsel will need to reach agreement on that issue.

Result

[30]   I make orders pursuant to s 309 of the Insolvency Act 2006 annulling the adjudication of the Monnerys bankrupt.

[31]   The adjudication proceedings are to be reheard and will be called again in the Bankruptcy List on 21 May 2020 at 10.00 am.

[32]As to costs, I find that there should be no orders made.

Associate Judge P J Andrew

This judgment was delivered by Associate Judge Andrew on 29 April 2020 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date…………………….