Copland v Goodwin

[2013] NZHC 1473

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV 2012-412-000519 [2013] NZHC 1473

BETWEEN  BRIAN STEWART COPLAND Plaintiff

ANDWAYNE ERNEST GOODWIN Defendant

Hearing:                   13 June 2013

Appearances:           J C D Guest for Plaintiff

A Beck for Defendant

Judgment:                19 June 2013

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      On 28 March 2013 Mr Goodwin was adjudicated bankrupt.  The order was made on an unopposed application by Mr Copland, based on a bankruptcy notice issued by the Court in respect of a judgment entered against Mr Goodwin on 11

October 2006, on an admission of claim.  Mr Goodwin has appealed to the Court of Appeal against his adjudication.  He applies to suspend the adjudication pending the outcome of the appeal.  Mr Copland opposes the application.

[2]      Section 416 of the Insolvency Act 2006 provides:

416    Suspension of adjudication pending appeal

(1)     If  an  appeal  has  been  filed  against  an  order  of  adjudication,  the bankrupt or any other interested person may apply to the court or the Court of Appeal for an order suspending the adjudication until the appeal is decided.

(2)     The court or Court of Appeal may suspend the adjudication on the conditions  that  it  thinks  appropriate,  including  conditions  as  to anything done or decided, or that ought to have been done or decided, by any person in the period between the adjudication and the order suspending adjudication.

B S COPLAND v W E GOODWIN [2013] NZHC 1473 [19 June 2013]

(3)     The court or the Court of Appeal may at any time make an order as it thinks appropriate as to anything done or decided, or that ought to have been done or decided, by any person in the period between the adjudication and the date when the appeal is decided if—

(a)   the adjudication has been suspended and the appeal fails; or

(b)   the adjudication has not been suspended and the appeal succeeds.

[3]      In Parlane v Young,1  Associate Judge Osborne reviewed two cases decided under the Insolvency Act 1967, Lindsay v Vaucluse Holdings Ltd2  and Kroon v Westpac  Banking  Corporation.3     From  those  decisions,  and  from  Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd,4 in which Hammond J set out the factors to be considered in relation to a stay of execution of a judgment,

his Honour distilled a list of factors which the Court might consider relevant when determining an application to suspend adjudication in bankruptcy.5     Mr Beck presented his argument by reference to the factors identified, as did Mr Guest.   I agree this is the correct approach to the analysis that is required for determination of this application, and consider the factors identified by counsel.

Will the appeal to the Court of Appeal be rendered nugatory?

[4]      Mr Goodwin’s appeal awaits a fixture.  The best indication counsel were able to give me is that a fixture may be allocated late this year.  Mr Beck says that unless the bankruptcy is suspended, the Official Assignee will be at liberty to take all steps necessary to liquidate any assets of the judgment debtor and finalise the distribution of  his  estate  before  the  appeal  is  heard  and  determined.    He  says  the  Official Assignee has indicated that this process is likely to be finished within a matter of months.

[5]      Mr  Beck  also  says  that  the  outcome  of  the  appeal  is  important  to Mr Goodwin as, should his adjudication be set aside, he will be able to have what he describes as “an underlying dispute” with Mr Copland resolved in a proceeding

which he issued earlier this year.  He says this proceeding will fall away unless the

1      Parlane v Young HC Auckland CIV 2010-404-005478, 25 July 2011.

2      Lindsay v Vaucluse Holdings Ltd CA272/99, 13 December 1999.

3      Kroon v Westpac Banking Corporation HC Auckland CIV 2006-404-004720, 15 May 2007, per Ronald Young J.

4      Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA).

5 At [34].

adjudication is suspended, and it seems highly unlikely that the Official Assignee would be prepared to spend the funds needed in order to continue that proceeding. He refers also to another High Court proceeding in which Mr Goodwin is involved, concerning possession of a property, which, again, the Official Assignee’s office will not be in a position to prosecute.

[6]      Mr Guest says that if the two separate proceedings have merit they can be pursued by the Official Assignee and if they do not, it is appropriate for the Official Assignee not to pursue them.   He points out that by an order made in this court pending determination of this application, the Official Assignee is required not to take any irreversible steps in relation to the assets in Mr Goodwin’s estate until this application has been decided (though information gathering by the Official Assignee will continue).   As well, the Official Assignee filed a memorandum on this application, referring to her undertaking in the terms reflected in the order of the Court and indicating that the Official Assignee is prepared to continue that undertaking until determination of the appeal to the Court of Appeal, should this application be declined.

[7]      It is clear, therefore, that no irreversible steps will be taken by the Official Assignee in relation to the assets in Mr Goodwin’s estate until the appeal is decided. In  discussion,  Mr  Beck  accepted  that  the  proceeding  Mr  Goodwin  has  against Mr Copland could simply be put on hold, whether by way of a formal stay or by agreement, until the outcome of the appeal is known, and that there is no reason why the appeal cannot continue if this application is declined.

Has the appeal been brought bona fide?

[8]      Mr Beck says that the appeal was launched very promptly after the judgment of this Court was received, and Mr Goodwin is ready to present the appeal as soon as the court has a hearing day available.  Mr Guest says that Mr Goodwin has applied for legal aid which can result in delays to a hearing, and that the notice of appeal is far  from  focussed,  challenging  in  fact  every  point  which  was  found  against Mr Goodwin.    He  also  says  that  as  the  appeal  challenges  the  service  of  the

bankruptcy notice on which adjudication was based, it is open to Mr Copland to simply issue another notice and serve it on Mr Goodwin, should the appeal succeed.

Will there be prejudice to Mr Copland?

[9]      Mr  Beck  says  that  there  would  not  be  any  substantial  prejudice  to Mr Copland if the adjudication is suspended pending appeal.   He says there is no suggestion  that  Mr  Copland  will  ultimately  receive  any  greater  sum  in  the bankruptcy if the suspension is refused.

[10]     Mr Guest says that delay in itself is prejudicial to Mr Copland.  Further, he says that a suspension of the bankruptcy would mean that Mr Goodwin would be free to deal with his assets again, to travel overseas and to engage in business.  He notes that the application specifically refers to Mr Goodwin being precluded from carrying on business, which involves the financing of substantial ventures both nationally and internationally.   Mr Goodwin annexed to his affidavit a list of 29 opportunities in this field, described in very general terms, that he says have been lost to him as a result of the publicity attendant on his bankruptcy.  Twenty-two of the opportunities are in China, the United States of America, the United Kingdom and the Middle East.   Two of them are described as “straight financing”, one as international marketing rights, 14 as joint ventures and 11 as significant shareholdings.  No other details are given.  He says that the ongoing existence of the negative publicity surrounding his adjudication means that no institutional funder will look at his applications for funding and he is left only with possible private sources; even those will not be available to him, he says, if the adjudication order is not suspended until the appeal proceeding can be fully heard.  He says that he will effectively be put out of business altogether.

[11]     However, Mr Guest submits that Mr Goodwin has shown some serious signs of mismanagement and insolvency, including suffering a mortgagee sale by a bank, suffering a sale under an order of this court, being engaged in litigation in respect of the home he is living in with the likelihood that it, too, will be sold, and claiming to be eligible for legal aid.   Mr Guest notes that one of the main reasons given by

Mr Goodwin for wishing to be free of bankruptcy is to engage in litigation which will likely incur significant expenditure, and potential liability.

What would be the effect on third parties?

[12]     Mr Beck  says  that  no  other creditors  applied  to  join  the  application  for bankruptcy, and the only claims that have been lodged with the Official Assignee are by trading banks.   He says, therefore, there are no third parties who would be injuriously affected by the granting of a suspension, and he notes that the Official Assignee does not oppose the suspension.

[13]     Mr Guest says that all identified creditors could be prejudiced, and notes that the bankruptcy period has only run for a short time, so other creditors may well be identified.

[14]     In  an  affidavit  sworn  by  the  Deputy  Official  Assignee  in  Christchurch, reference is made to a company called Australasian Securities Limited, which the Official Assignee learnt about as a result of a routine search of public records.  She notes that Mr Goodwin was both a shareholder and director.  She says that he told her that the company had no assets and had never traded.   She received a clear impression from him that the company was a shell or dormant company.  However, she subsequently received information that a firm of solicitors in Dunedin, which has been involved in litigation with Mr Goodwin, had received funds drawn on a bank account in the name of this company.  She suggests that this shows a lack of candour on Mr Goodwin’s part in his dealings with her office.  Mr Goodwin says, however, that the information he provided to her is correct.  The company is an entity which makes payments of borrowed funds in order to keep proper records of payments.

Are the points on appeal novel?

[15]     Mr Beck says that a number of the points raised in the appeal have not previously been considered by the courts, but are seriously arguable.  Mr Guest says that even if this is so this is not sufficient to support a suspension.  Rather, the issue is the strength or otherwise of the appeal.  He notes that there was no prejudice to the

bankrupt as a result of the substituted service order which is challenged, because it was never suggested that the bankruptcy notice failed to come to his notice in a timely way – indeed, it was delivered to the solicitors then acting for him.  He says the underlying judgment on which the notice was based is beyond challenge and the new proceeding which Mr Goodwin has recently brought against Mr Copland cannot negate the debt owed by him.

Where does the public interest lie?

[16]     Mr Beck submits that the appeal raises an issue of public interest, namely compliance with the service requirements of the Insolvency Act, and whether substituted service can be ordered in respect of bankruptcy proceedings.

[17]     Mr Guest says that there is a public interest in maintaining the status of bankruptcy when the debtor is insolvent, yet intends to undertake business ventures handling other people’s money, and engaging in litigation at some cost.  He says that Mr Goodwin’s affairs need to be kept under restraint.

Where does the balance of convenience lie?

[18]     Mr Beck says that unless suspension is granted irreversible consequences are likely to follow before the appeal can be heard by the Court of Appeal, and the interests of justice require that appeal rights for litigants be meaningful.   He says suspension would not result in substantial prejudice to the judgment creditor or any other person, so the balance of convenience favours an order for suspension.

[19]     Mr Guest says that the Official Assignee’s position in relation to conduct of the bankruptcy in the meantime, and the need to protect the interests of creditors, direct that the balance of convenience favours declining the order.

Discussion

[20]     It is important to place the effect of a suspension into perspective.   If a suspension were granted it would be for the period from the order until the decision of the Court of Appeal is given. At that point either the bankruptcy will continue, or

it will end.  The effects of a suspension within that timeframe are the effects which require consideration.

[21]     First, in my view the appeal will not be rendered nugatory.   The Official Assignee has not taken and will not take any irreversible step; this would plainly prevent the Official Assignee from intervening in the appeal process by preventing it from taking place, and the gathering of information by the Official Assignee will have no effect on the appeal.

[22] Mr Beck accepted that the existing proceeding Mr Goodwin has against Mr Copland can be put on hold, as noted at [7] above as can be the other proceeding he referred to. Even if that were not the case, I would accord little weight to any effect on those proceedings. The former is discussed at length in [37] to [50] of the judgment of 28 March 2013. For the reasons given in that judgment I indicated that I was not satisfied that the claim has substance, and I noted that the time which passed before the proceeding was issued may cast an element of doubt over Mr Goodwin’s intention to pursue it (though I did not draw an adverse inference for the purpose of the application then under consideration). For present purposes I see no disadvantage to Mr Goodwin in that case being delayed until the decision of the Court of Appeal is known. If the adjudication is set aside that case can be dealt with in the usual way. If it is not, it will be for the Official Assignee to determine whether to proceed with it or not. I have scant information only on the latter, insufficient to find any prejudice could arise in relation to it.

[23]     For these reasons I find that the appeal will not be rendered nugatory if the adjudication  is  not  suspended,  nor  will  Mr  Goodwin’s  other  proceedings  be materially affected.  I find that little weight can be given to this issue.

[24]     Secondly, I am satisfied that Mr Goodwin has brought his appeal in good faith.   Equally, the appeal does involve a novel point.   Neither of these is a point favouring the granting of a stay, though converse findings may have weighed against a stay.  In my view a decision in this case is to be guided by the remaining identified issues: prejudice to Mr Copland, the effect on third parties and the public interest.

[25]     Thirdly, I consider Mr Copland’s position.   He was entitled to be paid the sum for which judgment was entered, nearly seven years ago.   He has taken a number of steps to recover the proceeds of his judgment, predominantly without success.   Finally he issued a bankruptcy notice with which Mr Goodwin did not comply, thereby committing an act of bankruptcy, and adjudication in bankruptcy ensued.    Now  it  is  suggested  that  there is  no  prejudice to  Mr Copland  by the suspension of all actions by the Official Assignee for a period of some months.  On the  other  hand,  if  the  adjudication  is  not  suspended  the  Official Assignee  will continue  investigations  into  the  affairs  of  Mr Goodwin.    I  think  that  in  these circumstances  Mr  Copland  would  clearly be  prejudiced  by a  suspension  of  the adjudication.

[26]     On  the  other  hand,  as  noted,  the  undertaking  by  the  Official  Assignee prevents any irrevocable dealings with Mr Goodwin’s assets, thereby avoiding any prejudice that may have caused.  Mr Goodwin’s claim of prejudice to him from the advertising, and consequent public knowledge of his bankruptcy, is not relevant to the issue on this application, as it has already occurred.  I accept, however, that there is some ongoing prejudice to Mr Goodwin by his being curtailed in his ability to operate his business, as a result of the adjudication.  However, it is trite to say that responsibility for his present status lies squarely at the feet of Mr Goodwin.  He has had every opportunity to pay the sums he has been ordered to pay by a judgment of this Court and has failed to do so.  During that time, or certainly the latter part of it, he has operated the business which he now wishes to continue, but no part of the profits of that business has been applied to satisfaction of the judgment of this Court. In my view, any prejudice to Mr Goodwin from the bankruptcy continuing until the decision of the Court of Appeal is released is of little weight.

[27]     Fourthly,  any prejudice  that  there may be  to  Mr Goodwin  must  also  be balanced against the public interest element of adjudication in bankruptcy.   The adjudication was made because Mr Goodwin failed to meet a judgment of this Court, and by failing to meet a bankruptcy notice issued in respect of it, he committed an act of bankruptcy.  In the Official Assignee’s first report, Mr Goodwin’s assets are shown as a 5.25 metre boat subject to a secured debt, two book debts said to date

from 1998 and 1999 respectively, and shares in Australasian Securities Limited to which the Official Assignee has not, at this point, assigned any value (Mr Goodwin says it is not a trading company and does not have any assets). Apart from that, there are references to shareholdings in a company in the Bahamas which is a trustee, an interest in a trust which has a property in Mosgiel and an interest in a trust with an asset consisting of a debt owing to it by Mr Goodwin.   On the other hand, debts ascertained to date amount to $646,455, consisting of $80,000 to trading banks, and the debt of $66,455 to Mr Copland.

[28]     Notwithstanding this position, Mr Goodwin maintains that he wishes to carry on his business of financing both nationally and internationally.  As I have noted, in the period of just three weeks between the date of adjudication and the date of his first affidavit Mr Goodwin maintains that he lost no fewer than 29 opportunities to arrange financial transactions.

[29]    In my opinion there is a considerable public interest in Mr Goodwin’s bankruptcy continuing until such time as the decision of the Court of Appeal is available.  On his own evidence, he has the potential to be handling an average of approximately 10 apparently major financial transactions each week.   In my view there  is  a  significant  element  of  public  interest  against  this  occurring  when Mr Goodwin is, on the face of the evidence before the Court, very likely insolvent, having failed to pay a judgment debt for seven years, comply with a bankruptcy notice, or disclose assets with values which have any appearance of realising any appreciable part of his indebtedness.

Outcome

[30]     The  factors  I  am  required  to  consider  lead  me  to  a  clear  view  that

Mr Goodwin’s adjudication should not be suspended. The application is dismissed.

[31]     Mr Beck says Mr Goodwin has applied for legal aid.  I do not know whether he has yet received a decision on this application.  If he is an aided person as defined in the Legal Services Act 2011 there will be no award of costs.  If he is not, I award costs to Mr Copland on a 2B basis plus disbursements fixed by the Registrar.  In the event there is no award of costs for the above reason, I specify that the stated award would have been made in terms of s 45(5), but for Mr Goodwin being an aided

person.

J G Matthews

Associate Judge

Solicitors:

Downie Stewart, Dunedin. Jenny Beck Law, Dunedin.