Credit Link Factors Limited v Spicer HC Wellington CIV-2011-485-241

[2011] NZHC 416

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-241

IN THE MATTER OF     THE INSOLVENCY ACT 2006

AND IN THE MATTER OF THE BANKRUPTCY OF DAVID RICHARD JOHN SPICER

BETWEEN  CREDIT LINK FACTORS LIMITED, BRENDAN MCDONNELL AND RICHARD WILLIAMS

Judgment Creditors

ANDDAVID RICHARD JOHN SPICER Judgment Debtor

Hearing:         7 April 2011

(Heard at Wellington)

Counsel:         I.O. Caddis - Counsel for Judgment Creditor

D.R.J. Spicer - Judgment Debtor in person

Judgment:      8 April 2011 at 3:00 PM

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 8 April 2011 at 3.00 pm under r 11.5 of the High Court Rules.

Solicitors:           I. Caddis, Solicitors, PO Box 39-123, Wellington Mail Centre

Introduction

CREDIT LINK FACTORS LIMITED, BRENDAN MCDONNELL AND RICHARD WILLIAMS V DAVID RICHARD JOHN SPICER HC WN CIV-2011-485-241 8 April 2011

[1]      The judgment debtor, David Richard John Spicer (Mr Spicer), has applied to set-aside a Bankruptcy Notice served on him by the judgment creditor, Credit Link Factors Limited (Credit Link).  The amount claimed under the Bankruptcy Notice is

$10,497.85 plus certain amounts for costs.  The core debt of $10,497.85 represents an order made by the Disputes Tribunal at Lower Hutt on 27 September 2010 against Mr Spicer as an amount due for legal costs and disbursements.

[2]      On 2 March 2011, Mr Spicer filed an application to set-aside the Bankruptcy Notice together with two affidavits in support.  Since that time on 28 March 2011 he has filed a further two affidavits in support.

[3]      The grounds in Mr Spicer’s application to set-aside the Bankruptcy Notice as best I can tell are effectively:

(a)      The judgment upon which the Bankruptcy Notice is based is flawed because of some alleged difficulties with the assignment of the debt and the fact that a Mr McDonnell and Mr Williams, in addition to Credit Link were noted as judgment creditors before the Disputes Tribunal.

(b)The  Disputes  Tribunal  decision  is  tainted  because  the  judgment creditor, Credit Link, is an assignee of a bare right to sue in exchange for a portion of the proceeds of litigation, the Deed of Assignment is therefore champertous and accordingly it is “unlawful, invalid, contrary to common law and unenforceable”.

(c)      The Disputes Tribunal Referee based her decision on deliberate misinformation provided to the Tribunal by Mr Williams that misled her.

(d)At the Disputes Tribunal hearing Mr Spicer was given inadequate time to consider documents presented by Credit Link and on that basis both the Tribunal’s decision and the Bankruptcy Notice should be set-aside to avoid a miscarriage of justice.

[4]      The present application by Mr Spicer is opposed by Credit Link.

Background Facts

[5]      Mr Richard Williams (“Mr Williams”) was a solicitor who was engaged by Mr Spicer from around 2006 to carry out work for him and various commercial entities he operated under.

[6]      Work was undertaken by Mr Williams and payment of some costs rendered were made.  Subsequently, Mr Williams transferred his legal practice to Mr Brendan McDonnell (“Mr McDonnell”) trading as Petone Law and he may have then become an employee of the Petone Law Office.

[7]      Then, on 19 December 2007, it seems that Mr McDonnell entered into an Agreement as assignor with the judgment creditor, Credit Link as assignee to assign to Credit Link one debt then said to amount to $10,912.90 owing by Mr Spicer.  This debt was said to represent outstanding legal fees due from Mr Spicer for legal work undertaken by Mr Williams and Petone Law.   The terms of this Assignment Agreement required Credit Link to pay to Mr McDonnell 50% of the net amount recovered from Mr Spicer after payment of recovery costs.

[8]      After the legal fees debt was assigned to Credit Link, it then took action against  Mr  Spicer  to  obtain  judgment.    As  I  understand  it,  proceedings  were originally commenced in the District Court at Lower Hutt but were then transferred to the Disputes Tribunal.  After a defended hearing before the Tribunal where both Mr Williams and Mr Spicer gave evidence, as I have noted above, the Tribunal made an order against Mr Spicer requiring him to pay $10,497.85 to Credit Link.

[9]      Mr Spicer then applied  to the Disputes Tribunal for a re-hearing of this matter.  This application was considered by the Disputes Tribunal referee who gave the  27  September  2010  decision.  In  a  reasoned  decision,  she  dismissed  the application on 12 January 2011.

[10]     In  the meantime Mr Spicer had lodged  a complaint with the Wellington District Law Society regarding the actions of counsel for Credit Link in this whole debt dispute.  This complaint was dismissed.  Mr Spicer then sought a review of this decision by the Law Society’s Wellington Standards Committee No. 2 declining his complaint.  This review was heard by the Legal Complaints Review Officer.  On 1

June 2010 the Legal Complaints Review Officer released her  reasoned decision declining Mr Spicer’s review application.   This now brings us to the present application.

[11]     On 15 February 2011 Credit Link requested the issue of a Bankruptcy Notice against Mr Spicer for the judgment debt of $10,497.85 plus costs and it was issued.

[12]     Mr Spicer’s present application to set-aside the Bankruptcy Notice was then filed on 2 March 2011.

Parties‟ Submissions and my Decision

[13]     The present application is effectively brought pursuant to s 17 Insolvency Act

2006.   This provides that a debtor commits an act of bankruptcy if a creditor has obtained a final judgment or order against the debtor, the debtor has been served with a  Bankruptcy  Notice  and  the  debtor  has  not,  within  the  specified  time  limits, complied with the requirements of the Notice or satisfied the Court that he or she has a cross-claim against the creditor.  Section 17(7) defines a cross claim as a counter- claim, set-off or cross-demand that is equal to, or greater than the judgment debt, and that the debtor could not have used as a defence in the proceeding in which the judgment or order was obtained.

[14]     Here,  there  is  no  suggestion  by  Mr  Spicer  as  debtor  that  there  are irregularities in the Bankruptcy Notice issued against him or that it has not been served in compliance with the rules as to service in the High Court Rules.

[15]     Brookers  Insolvency  Law  and  Practice  at  para  IN17.10  addresses  the question of a s 17(1)(d)(ii) cross claim against the creditor and states:

IN17.10     “cross claim against the creditor” — s 17(1)(d)(ii)

The second option in s 17(1)(d) Insolvency Act 2006 is that the debtor, within the time limit specified, satisfies the Court that he or she has a cross claim against the creditor. Section

17(7) provides further guidance on the meaning of a cross claim. It requires that the cross claim must be “equal to, or greater than, the judgment debt” and it is one which “the debtor could not use as a defence in the action or proceedings in which the judgment or order … was obtained”.

These requirements are discussed further below, but in summary ss  17(1)(d) and 17(7) Insolvency Act 2006 requires the debtor to:

(i)        Demonstrate that he or she has a cross claim of true substance which he or she genuinely proposes to pursue (Sharma v ANZ Banking Group (1992) 6 PRNZ 386; [1992] 3 NZBORR 183 (CA), see further IN17.10(5) below);

(ii)       Establish that the cross claim is equal to or is greater than the judgment debt (see further IN17.10(6) below);

(iii)      Establish that he or she could not, by law, use the cross claim as a defence in the action or proceeding on which the judgment or order providing the basis for the bankruptcy notice was entered (Clark v UDC Finance Ltd [1985] 2 NZLR 636, 639 see further IN17.10(3) below); and

(iv)      If he or she relies on factual inability to set the cross claim, he or she must establish some cogent circumstances because the primary emphasis is on the legal nature of the impediment (Hardie v Booth [1992] 1 NZLR 356, 362, see further IN17.10(3) below).

[16]     In the present case the essential position advanced by the judgment debtor, Mr Spicer, before me in support of his application in his words was:

I have been overcharged. I have always said the accounts for legal fees were wrong. But, in any event, it is only me that will profit from my bankruptcy as I have no house or assets and only a half-share in a car with my wife worth a total of $3-

4,000.00. Credit Link will get nothing from my bankruptcy.

[17]     In the various affidavits and material which Mr Spicer has placed before the Court, however, there does not appear to be anything which indicates that the tax invoices rendered to Mr Spicer from Mr Williams were in any way unjustified or improper.  There is also nothing before the Court to bear out the claims made by Mr Spicer in submissions to me that Mr Williams was incompetent and did not follow his instructions.   Indeed, the carefully reasoned decision of the Disputes Tribunal dated 27 September 2010 makes the following specific findings:

(5)       Weighing up all the evidence, I prefer that of Mr Williams as I found his evidence to be more credible with both the detailed billing information presented and his clear recall, in his direct evidence, of the work any queried entry related to.  I am satisfied therefore that Mr Williams met his contractual obligations to Mr Spicer and that his charges are reasonable. Mr Spicer is therefore contractually obligated to pay for the services he has received.

[18]     Further, in the 12 January 2011 decision of the Disputes Tribunal refusing Mr Spicer’s  application  for  a  re-hearing,  the  Referee  deals  specifically  with  the allegation from Mr Spicer that Mr Williams misled the Tribunal with his evidence at the earlier hearing.   In doing so, she concluded that there was nothing in this allegation and that any claim that new evidence would bear out this contention was without substance.

[19]     The debt here which is the subject of the Bankruptcy Notice relates to long outstanding accounts for legal fees rendered to Mr Spicer.  Importantly, he confirmed before me that he has not chosen to have these legal bills taxed or referred to the Law Society for review.

[20]     In addition, at the hearing and in all the material he has placed before the Court, Mr Spicer has raised nothing which could be considered as a justifiable counter-claim, set-off or cross-demand which would equal or exceed the amount of the judgment debt.  Certainly, even if he had done so, there was also no explanation made as to why such a claim could not have been used as a defence in the Disputes Tribunal proceedings in which the original order was obtained.   On this, there appeared also to be nothing placed before the Disputes Tribunal Referee at the 12

January 2011 re-hearing application which might have been used as a potential defence.

[21]     The  only  real  issue  before  me  of  any  possible  substance  related  to  Mr Spicer’s claim that the Assignment Agreement with Credit Link was flawed as being champertous and thus Credit Link as judgment creditor had no standing to obtain their Disputes Tribunal order and to bring this bankruptcy proceeding.

[22]    As to this aspect, certain complaints Mr Spicer had with respect to the Assignment Agreement have been already placed before the Disputes Tribunal.  The Referee in her 27 September 2010 decision dealt specifically with the claim by Mr Spicer that the Assignment was invalid as it had not been signed by Mr MacDonnell as assignor as required under s 130 Property Law Act 1952.  The Referee dismissed this argument and concluded that she was satisfied the Assignment was in writing,

effectively signed by appropriately authorised agents, and indeed written notice of the Assignment was sent to Mr Spicer the same day.

[23]    Turning now to the argument that the Assignment to Credit Link was champertous and therefore invalid, in my view this argument is quickly disposed of. As general background regarding the torts of maintenance and champerty, Todd, The Law of Torts, Fifth Edition at para 18.5.01 states by way of introduction:

The tort of maintenance is committed where a person, without lawful justification, assists a party to a civil action to bring or to defend the action, thereby causing damage to the other party.   Champerty is that form of maintenance in which the person giving the assistance does so in consideration of his or her receiving a share in anything that may be gained as a result of the proceedings.   The law of maintenance and champerty seeks to prevent wanton and officious interfering with the  disputes  of  others  in  which  the  intervener  has  no  interest  and  where  the assistance is without justification or excuse.

[24]     Todd, The Law of Torts at para 23.12 goes on to deal with the issue of assignment of causes of action and states:

It is apparent that an assignment of a right to sue for breach of contract may validly be made where the assignee has a genuine commercial interest in the subject matter of the proceedings, ....

[25]     Credit Link, in outlining its position here, seems to confirm that for some time it was the agent of the assignor Mr MacDonnell for a range of his practice debts and further, that Credit Link’s business was at least in part engaged in collecting a substantial number of individual debts from third parties most of them, like the present debt, assigned absolutely to Credit Link.

[26]     Assignments of this type are commonplace.   In my view, Credit Link as assignee has a genuine commercial interest in the subject matter of the  present proceeding which resulted in the Disputes Tribunal order and thus the present bankruptcy proceedings.

[27]     I dismiss Mr Spicer’s claim that the Assignment Agreement for the debt in question was champertous and therefore the present proceeding is tainted.

[28]     Finally, although not strictly relevant to matters before me, it is clear to me that, in any event, Mr Spicer is insolvent.  He confirmed this on his own admission in submissions before me, as I have outlined at para [16] above, and on the evidence of his accountant in a note dated 12 December 2006 it appears he has been insolvent for at least the last 4 years.

[29]     For all these reasons the application by Mr Spicer as judgment debtor to set- aside the Bankruptcy Notice must fail.

[30]     An order is now made that the judgment debtor, Mr Spicer, is to have until

5.00 pm on 15 April 2011 to comply with the Bankruptcy Notice served upon him.

[31]     As to costs, Credit Link, the judgment creditor has succeeded in opposing the present application, and I see no reason why it should not be entitled to an order for costs in the usual way.

[32]     Costs are therefore awarded to Credit Link, the judgment creditor, on this application on a category 2B basis together with disbursements as fixed by the Registrar.

„Associate Judge D.I. Gendall‟