DeMarco v Official Assignee

[2023] NZHC 1576

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2022-485-642

[2023] NZHC 1576

UNDER

Section 226 of the Insolvency Act 2006

AND

IN THE MATTER

of an application to review the Official Assignee’s decision

BETWEEN

EUGENE JOHN DEMARCO

Applicant

AND

THE OFFICIAL ASSIGNEE in bankruptcy of the property of Eugene John DeMarco Respondent

Hearing:

19 June 2023

Counsel:

E J DeMarco in person

R M G Hindriksen for Respondent

Judgment:

23 June 2023

JUDGMENT OF RADICH J

[1]                 Eugene John DeMarco (Mr DeMarco),1 an undischarged bankrupt, has brought this appeal under s 226 of the Insolvency Act 2006 (the Act) from a decision of the respondent (the Official Assignee) in which Mr DeMarco’s request for the Official Assignee’s consent for him to travel to the United States of America was declined.

[2]                 Mr DeMarco had purchased his airline ticket to travel to the United States before he sought the permission that was needed for him to travel from the Official

1      Mr DeMarco seeks to draw a distinction between “Mr DeMarco” as a corporate form, on the one hand, and “a people who is called Eugene”, on the other. For reasons I go on to give, the distinction is not tenable and I refer in this decision to all aspects of the applicant as “Mr DeMarco”.

DEMARCO v OFFICIAL ASSIGNEE [2023] NZHC 1576 [23 June 2023]

Assignee. He left New Zealand for the United States before the Official Assignee’s decision was made. The decision was made and communicated just three days after the request was made.

[3]                 Mr DeMarco has not complied with a number of timetable orders made by the Court (and extended on several occasions to accommodate his interests) requiring him to file evidence in support of the appeal. The grounds for the appeal remain unknown. In these circumstances, the Official Assignee seeks security for costs and orders staying the proceeding until Mr DeMarco pays funds into the Court or gives security in accordance with the Court’s orders. It is that application with which this decision is concerned.

[4]                 Mr DeMarco raises a preliminary matter. He says that the Court does not have jurisdiction to consider the application – or the proceeding  as a whole  – because  Mr DeMarco is a legal fiction, a point I address in the next section of this decision.

[5]                 I am in no doubt that the Court has jurisdiction in this proceeding and, in relation to this application, that security for costs should be ordered and that the proceeding should be stayed.

Protest to jurisdiction

[6]                 Mr DeMarco has, in a memorandum of 10 June 2023, protested the Court’s jurisdiction. The challenge is based, it is said, in three documents which Mr DeMarco regards as not having been refuted. Those documents are as follows:

(a)a memorandum in response to a minute of Grice J, dated 25 April 2023;

(b)the affidavit of DeMarco of 25 April 2023; and

(c)the “proclamation of Eugene  John  of  the  DeMarco  Family  dated 26 March 2023”.

[7]                 In the memorandum of 25 April 2023 it is said, amongst other things, that “Mr DeMarco is a person and a person is a legal fiction, a corporation, a creation of

the state and merely a piece  of  paper”  and  that  it  is  impossible,  therefore,  for Mr DeMarco to make an application or to do any other thing.

[8]                 A distinction is sought to be made between the corporate form of Mr DeMarco, as just described, and “the agent for the estate of Eugene John DeMarco, a people who is called Eugene”. In Mr DeMarco’s 25 April 2023 affidavit, it is said that, as a result of these same points, the person who is living with “a call of Eugene” is exempt from these proceedings. It is said that the only Court with available sovereign jurisdiction is the People’s Full High Court. It is said that this Court is in Huntly.

[9]                 It is said that s 381(2) of the Criminal Procedure Act 2011 supports this submission. However, that provision has no application here. It applies in the confined area of the payment of court fines and costs – directing that court orders about the payment of costs that result from procedural errors override other enactments that would have given anyone protection from liability.

[10]             Mr DeMarco’s “dual personality” or “split person” theory is sometimes referred to as part of “pseudolaw”, a term that refers to a phenomenon through which litigants deploy “a collection of legal-sounding but false rules that purport to be law”.2 Pseudolaw “mirrors and co-opts the language, forms and structures of legal reasoning, but it lacks the substantive engagement with core norms, principles and methods of legal reasoning”.3

[11]             Dual personality theories essentially contend that people have two separate and distinct entities: a natural or corporeal form; and a fictitious, legal personality. The theory has been explained in these terms:4

The basis of [the split-person argument] is that there are natural individuals and some sort of ‘artificial’, corporate or fictive legal personality. As mentioned above, adherents believe that every person is an individual sovereign. Because every person has inalienable,

2      Stephen Young, Harry Hobbs and Joe McIntyre The growth of pseudolaw and sovereign citizens in Aotearoa New Zealand courts [2023] NZLJ 6 at 6, citing Donald Neteolitzky “A Rebellion of Furious Paper: Pseudolaw as a Revolutionary System” (Paper delivered to the Centre d’expertise et de formation sur les intégrismes religieux et la radicalisation (CEFIR) symposium: ‘Sovereign Citizens in Canada’, Montreal, 3 May 2018).

3      At 7.

4      At 8. As the authors note, however, these types of arguments tend to be fluid (or jumbled), and accordingly may not always be capable of clear articulation.

natural rights, governments assert their authority over natural or ‘flesh and blood’ persons to make them subjects. Governments do that, for example, when a birth certificate, bank account, driver’s license or government identity is issued. Those actions create an ‘artificial’ person – a legal person, personality, corporation, or ‘strawman’ – over whom the government and its agencies, which are parallel corporate forms, have jurisdiction. The crucial aspect is that the nature or living man or woman is freed from government subjection when they assert their status, claim it, and prove it.

[12]             These theories have been rejected consistently by the Courts as lacking any legal foundation. In Niwa v Commissioner of Inland Revenue, Ellis J observed that attempts to employ such concepts to avoid or defeat any state, regulatory, contract, family or other obligations recognised by law “will inevitably be an abuse of process”.5 And as the Court of Appeal has held:6

[11]  Acts of Parliament, including criminal enactments, are binding on all persons within the geographical territory of New Zealand. The Courts of New Zealand must uphold all Acts of Parliament as enacted. … No person within New Zealand is able to dissociate themselves from their ‘legal persona’ so as to remove themselves from the jurisdiction of the courts. The arguments advanced by [the appellant] are untenable and without legal foundation.

[13]             It follows that there is no basis for Mr DeMarco’s claim that the Court does not have jurisdiction. However he may be referred to or described, Mr DeMarco is subject to the jurisdiction of this Court.

[14]             As Mr Hindriksen observed, Mr DeMarco’s protest to jurisdiction should mean that he would wish to withdraw his appeal. Because Mr DeMarco’s position on that point when it was discussed with him is less than clear, I proceed to determine the application that is before the Court.

Procedural steps in the appeal

[15]             Because Mr DeMarco did not file evidence in support of his application to reverse the Official Assignee’s decision under s 226 of the Act,7 Churchman J directed on 28 November 2022 that the matter would be adjourned until the Judge’s Chambers

5      Niwa v Commissioner of Inland Revenue [2019] NZHC 853, [2019] NZAR 1104.

6      Warahi v Chief Executive of the Department of Corrections [2022] NZCA 105 at [16].

7      And following exchanges between the parties over Mr DeMarco’s requests for information from the Official Assignee.

List on 1 February 2023 and that Mr DeMarco was to file affidavits in support of his application 10 working days before that.

[16]             Mr DeMarco did not file evidence as directed. As a result, the Official Assignee applied on 26 January 2023 for an order that, unless Mr DeMarco filed his affidavit evidence within 10 working days, the proceeding be dismissed or, alternatively, requiring Mr DeMarco to pay security for the Official Assignee’s costs and staying the proceeding until security is given.

[17]             When the case was called again on 1 February 2023, Isac J directed the case to be recalled on 6 March 2023 on the basis that Mr DeMarco was to file evidence in support of the review  application  five  working  days  prior  to  the  call.  Again,  Mr DeMarco did not file any evidence. He did, however, file a memorandum in which he sought tailored discovery. He filed an affidavit, witnessed by a notary public in the State of New York, in support of that application but the affidavit did not touch upon matters relating to the basis for the appeal.

[18]             In a minute of 7 March 2023, Grice J observed that the affidavit contained matters that are more properly described as submissions and that nothing meaningful had been filed either in support of the appeal or of the Official Assignee’s application. No application for discovery was made – but discovery would not appear to be appropriate on this appeal in any event.

[19]             Mr DeMarco was directed by Grice J to file any notice of opposition and supporting evidence to the security for costs application by 27 March 2023. Nothing was filed and so, on 13 April 2023, counsel for the Official Assignee filed a memorandum seeking orders for security for costs as moved on the papers.

[20]             On 26 April 2023, Mr DeMarco filed the memorandum, the affidavit and the proclamation referred to in paragraph [6] above. Although those documents did not provide information in support of the appeal or in opposition to the Official Assignee’s application, they were headed as being “in response to minute of Grice J dated 7 March 2023” and they were taken by the Court as being the documents that Mr DeMarco

wanted the Court to have when it considered the Official Assignee’s application for security for costs. The application was set down for hearing on that basis.

[21]             On 10 June 2023, Mr DeMarco filed the memorandum referred to in [6] above and, on the same day, he filed a statement of claim in two different proceedings (CIV- 2021-485-524 and CIV-2021-485-130) which raised matters that were very much the same as those referred to in [7] and [8] above and which are not relevant to this application.

Legal principles

[22]             Under r 5.45 of the High Court Rules 2016 (to summarise the relevant terms of the rule), if a Judge is satisfied that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is not successful, then a Judge may, if he or she thinks it just in all the circumstances, order the giving of security for costs. If an order is made, then a sum that it is considered sufficient by the Judge is to be paid into Court or, alternatively, the party is to give security for the sum to the satisfaction of the Judge or the Registrar. The proceeding must be stayed until the sum is paid or the security given.

[23]             As counsel for the Official Assignee observes, the rule requires the Court to consider three questions:8

(a)Is there reason to believe the plaintiff will be unable to meet an award of costs against it? This is the threshold question.

(b)Should the Court exercise its discretion to make an order for security for costs?

(c)What amount should security be fixed at and should a stay be ordered pending payment?

8      Highgate on Broadway Limited v Devine [2012] NZHC 228, [2013] NZAR 1017 at [6].

Is there reason to believe the plaintiff will be unable to meet an award of costs against him?

[24]             This threshold question needs to be determined on the facts. The same factual inquiry was undertaken by Woolford J in 2022 when he considered another appeal from Mr DeMarco, under s 266 of the Act against different decisions on the part of the Official Assignee.9 In that case, Woolford J said:

[55] There appears to be no dispute on this matter [that Mr DeMarco is impecunious]. Mr DeMarco submits the Registrar of the Court of Appeal erred by not recognising his impecuniosity. …

[25]             In addition, Mr DeMarco is an adjudicated bankrupt. He has been adjudicated bankrupt also in the United States following a petition by the Official Assignee. A statement of his assets and liabilities, filed in the US bankruptcy proceedings, shows the value of his liabilities to be well in excess of the value of his assets. And it shows that, at the time it was filed, Mr DeMarco had no income, only government assistance.

[26]             Moreover, Mr DeMarco did not pay the security for costs awarded by Woolford J and the proceedings to which the security related were struck out by the Court on 14 December 2022.

[27]             The threshold test is clearly  met  –  there  is  good  reason  to  believe  that Mr DeMarco will not be able to meet an award of costs against him.

Should the Court exercise its discretion to make an order?

[28]             The Court’s discretion under r 5.45 is a reflection of the need for the Court to balance the interests that a defendant has in being protected from a barren costs order and the right that a plaintiff has to access to the Court; a right that is not lightly to be denied.10 A number of considerations can be relevant to the Court’s assessment.11

9      DeMarco v Official Assignee [2022] NZHC 1481.

10 The balancing act between these respective interests is described in A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA); and Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737.

11 Highgate on Broadway Limited v Devine, above n 7, at [22]–[24].

[29]             The first of them is a consideration of the merits and prospects of success of a plaintiff’s claim. While it is not appropriate that a Court predetermine the merits of a case or form more than an impression, if a prima facie can be established that a plaintiff’s claim is unmeritorious, that will be a factor in favour of security.12

[30]             While Mr DeMarco has chosen not to file affidavit evidence in support of his substantive application, it seems sufficiently clear that the appeal is without merit.

[31]             Mr DeMarco asked the Official Assignee to approve his travel to the United States on 20 September 2022, proposing a departure date “as soon as possible” and a return date of 18 October 2022.13   He wished to travel to see his mother who was    94 years of age and whose health was deteriorating. He said that his departure would be temporary, that his employer would purchase his return air fares and that the Parole Board had brought his parole to an end to enable him to take the trip.

[32]             The next day, the Official Assignee told Mr DeMarco that he would give urgent consideration to the travel request. The Official Assignee said that, in order to do so, he would need Mr DeMarco to provide, urgently, a completed statement of affairs (including  details  of  assets  and  liabilities   in  the  United  States),  evidence  of Mr DeMarco’s parole conditions being discharged and information about his costs in the United States and how they would be met.

[33]             Mr DeMarco responded that same day by attaching a copy of the Parole Board’s decision and providing some other information but he did not provide his completed statement of affairs as requested.

[34]             The Official Assignee observed that the Parole Board’s decision recorded that Mr DeMarco had been charged, just recently at that point, with breach of his parole conditions for attempting to fly to the United States in August 2022 without prior approval from the Probation Service. It records that he was subject to bail conditions at that time, including the surrender of his passport. In light of this information, the Official Assignee asked Mr DeMarco to provide copies of documents recording the

12     At [22(c)].

13     The application was made under reg 11 of the Insolvency (Personal Insolvency) Regulations 2007.

charge that he was facing and a bank statement or other evidence showing how it was that he was able to purchase the ticket to the United States at Auckland airport on that occasion. It reiterated again the need for Mr DeMarco to provide his statement of affairs.

[35]             While, ultimately, charges are not being pursued for the breach of parole conditions in August 2022, the events demonstrated that Mr DeMarco was endeavouring to leave the country at that point not only in breach of his parole conditions but without the consent of the Official Assignee. The Assignee was concerned that Mr DeMarco would do it again.

[36]             Members of the office of the Official Assignee were documenting the Assignee’s decision on Mr DeMarco’s application on the evening of 23 September. That same evening, the Assignee was advised by Interpol that Mr DeMarco had flown to the United States the previous night – that is, on 22 September 2022.

[37]             While, perhaps, there was little to be achieved by it at that point in time, the Official Assignee issued his decision that evening, which was that he would consent to Mr DeMarco travelling to the United States provided that he first satisfied the Assignee of certain conditions including:

(a)the provision of a return ticket to New Zealand issued in his name for travel back to New Zealand by 18 October 2022;

(b)a completed statement of affairs; and

(c)details of particularised assets that the Official Assignee suspected  Mr DeMarco held or had recently dispersed.

[38]             As Mr Viljoen has said in evidence for the Official Assignee in this proceeding,14 the Official Assignee took into account a range of factors in making his decision, including Mr DeMarco’s interests under the New Zealand Bill of Rights Act 1990, and humanitarian or compassionate considerations arising from the health of

14     Affidavit of Christoffel Johannes Viljoen of 26 January 2023.

Mr DeMarco’s mother. On the other side of the equation, the Official Assignee took into account the fact that the bankrupt estate had made no recoveries, that Mr DeMarco had failed continually to provide the information required of him under the Insolvency Act and the flight risk that Mr DeMarco presented.

[39]             In circumstances in which permission was given for Mr DeMarco to travel but only on receipt of certain information that Mr DeMarco was required, under the Act, to provide in any event, it is difficult to discern a tenable basis for the appeal.

[40]             A number of other discretionary factors can be relevant under r 5.45, but few are relevant on the facts of this case. For example, the Court sometimes inquires whether a defendant’s actions have caused the plaintiff’s impecuniosity. There is no suggestion of that here. Sometimes, there can be allegations of delay on the part of a defendant. Again, there is no delay here. The Official Assignee has acted promptly both in assessing the travel application and in the steps it has taken in this proceeding. Sometimes, it might be the case that a plaintiff could have access to third party funding or to legal aid. That is not the case here.

[41]             The conduct of the parties is relevant also. The Official Assignee refers  to Mr DeMarco having been an irresponsible litigant in The Vintage Aviator proceedings,15 in which, in striking out certain parts of Mr DeMarco’s pleading, reference was made to there being no proper basis for claims, and to pleadings being inadequate.16

[42]             As Mr Viljoen has explained in evidence, Mr DeMarco has denied repeatedly the Official Assignee’s authority to administer his bankrupt estate. It is put on the basis that Mr DeMarco is vexing the Official Assignee which operates as an indirect attack on the petitioning creditors and on The Vintage Aviator Limited which is the victim of his fraud for which he was imprisoned.17

15 The Vintage Aviator Limited v DeMarco [2021] NZHC 847.

16 See for example [32], [106]–[110]; and The Vintage Aviator Limited v DeMarco [2021] NZHC 1476, in which Mr DeMarco was denied leave to defend proceedings and The Vintage Aviator Limited v DeMarco [2021] NZHC 1912, in which Mr DeMarco was declined leave to appeal from the last-mentioned decision.

17 See The Vintage Aviator Limited v DeMarco [2021] NZHC 3096, the decision of Grice J giving judgment on Mr DeMarco’s wrongful acts relating to the aircraft and the judgment of the Court of

[43]             It is fair to say, as counsel for the Official Assignee does, that the Court of Appeal has commented adversely on Mr DeMarco’s approach in the litigation that has been mentioned. In delivering a judgment on Mr DeMarco’s application to review the Deputy Registrar’s refusal to dispense with security for costs on his appeal against the order adjudicating him bankrupt, it was said that the prospects of success on the appeal were limited and that the Court was:

… satisfied that this is not a case that a solvent appellant would reasonably wish to prosecute. Rather, it seems to be a further step in a very long-drawn- out effort to deprive the judgment creditors of the fruits of their judgment”.18

[44]             For all of these reasons, I find it to be just in all of the circumstances to order the giving of security for costs.

How much security should be paid?

[45]             The amount of security to be ordered is a matter for the discretion of the Court. A useful starting point will always be the costs to which a defendant would be entitled under the High Court Rules. However, the amount need not necessarily be fixed by reference to likely costs awards – it is a matter of what the Court thinks fit in all of the circumstances.19

[46]             The Official Assignee, in a schedule to its submissions, calculates scale costs on a 2B basis prospectively from the date of the security for costs application as being

$16,849.50. The costs calculations include steps that would be taken in opposing the application that Mr DeMarco has already made for tailored discovery and which has been repeated on several occasions in memoranda from Mr DeMarco. I see that as being a reasonable approach and will award security on that basis.

[47]             Under r 5.45(3)(b) of the High Court Rules, the Court must stay the proceeding until a sum by way of security is paid, or the security given. Special circumstances might enable a different approach to be taken but there are no such circumstances in this case.

Appeal in DeMarco v R [2022] NZCA 145, in which the Court declined Mr DeMarco’s application for leave to withdraw notice of abandonment of appeal against conviction.

18     DeMarco v Anderson [2022] NZCA 57 at [14] and [15].

19     A S McLachlan Limited v MEL Network Limited, above n 10, at [27]–[30].

Costs on this application

[48]The Official Assignee has applied for the following costs on this application:

Step20	Description	Time allocation	Sum ($2,390 per day)
22	Filing     interlocutory     application     for security for costs	0.6 days	$1,434.00
24	Preparation of written submissions	1.5 days	$3,585.00
25	Preparation by applicant of bundle for hearing	0.6 days	$1,434.00
26	Appearance at hearing for sole counsel	0.5 days	$1,195.00
29	Sealing order or judgment	0.2 days	$478.00
Total	3.4 days	$8,126.00
Description			Sum
Filing fee on interlocutory application (as per the Court’s receipt dated 26 January 2023; T110263)			$500.00

[49]             The Official Assignee is entitled to its costs on this application. The procedural history in the proceeding, described at [15] to [21] above, shows the trouble to which the Official Assignee has been put in this case and it is only reasonable to award scale costs – well below the Official Assignee’s actual costs – in these circumstances.

Result

[50]I make the following orders:

(a)Mr DeMarco is to pay $16,849.50 as security for costs.

(b)The sum of $16,849.50 is to be paid into court or secured to the satisfaction of the Registrar.

(c)This proceeding is stayed until the sum is paid or secured to the satisfaction of the Registrar.

20     High Court Rules 2016, sch 3.

(d)Mr DeMarco is to pay the Official Assignee’s costs on this application of $8,126 and $500 in disbursements.

Radich J

Solicitors:

Meredith Connell, Auckland for Respondent