Dennis v Goode

[2023] NZHC 2650

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2022-409-593

[2023] NZHC 2650

IN THE MATTER

of the bankruptcy of Bevan John Goode

BETWEEN

PETER RAYMOND DENNIS, PAUL STUART GOOBY and DEIRDRE

McNABB, as executors of the Estate of Phyllis Lorraine Frances Dennis Judgment Creditors

AND

BEVAN JOHN GOODE

Judgment Debtor

Hearing:	18 September 2023
Appearances:	S C Cowan and K P Webley for Judgment Creditors Self-represented Judgment Debtor
Judgment:	21 September 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

DENNIS v GOODE [2023] NZHC 2650 [21 September 2023]

[1]                 Mr Goode and Mr Ilagan guaranteed the rental obligations of Dynamic Technology Engineering  Limited (DTEL) to the plaintiff, who I will refer to as    Mr Dennis. The guarantee is recorded in an agreement to lease dated 7 March 2017 (the Lease). The binding nature of the guarantee is not in issue.

[2]The Lease provided that:

4.3Notwithstanding that the Lease may not have  been executed, the   parties shall be bound by the terms, covenants and provisions contained in this Agreement and in the Lease as if the Lease had been duly executed.

[3]                 “Lease” is defined as the then current Auckland District Law Society Deed of Lease. The relevant deed of lease required the tenant to pay the rent “without any deduction or set off”.

[4]                 For reasons I need not go into, DTEL did not pay the rent and summary judgment proceedings were issued against DTEL and the guarantors with judgment being entered by default. Mr Goode explained he was waiting outside the Court to be called but said the Registrar did not call his case, leading to the default judgment of 16 July 2018 in the sum of $16,658.19, indemnity costs of $6,780.00 and disbursements of $1,043.00.

[5]The order for summary judgment is silent as to interest.

[6]                 The certificate of judgment issued by the District Court on 5 December 2022, in addition to the above amounts, then records:

Interest from July 2018 to current plus two lots of 2B scale costs on the original charging order and renewal applications $3,526.45

[7]As will be discussed below, the creditor registered charging orders against the

guarantors’ properties.

[8]                 The creditor obtained a bankruptcy notice against Mr Goode whose challenge to the bankruptcy notice was filed out of time and dismissed.1 Mr Dennis issued an

1      Dennis v Goode [2023] NZHC 1883.

application to have Mr Goode adjudicated bankrupt which is opposed by Mr Goode on the following grounds:

(1)DTEL had a damages claim against Mr Dennis;

(2)after Mr Goode applied to have the default judgment set aside, that application was withdrawn as Mr Goode says he and Mr Dennis reached a compromise that Mr Dennis would accept payment of his out-of-pocket legal costs in settlement of the debt;

(3)Mr Dennis had a charging order over Mr Ilagan’s property which he released without requiring any payment from him;

(4)the judgment debt should not have included GST; and

(5)a dispute as to the claim of interest from the obtaining of judgment to the date of certificate of judgment.

[9]I now consider each ground of defence.

DTEL’s claim against Mr Dennis

[10]              The Lease required rent to be paid on a “pay first argue later” basis.2 The claims raised by Mr Goode as to issues with the tenancy, to resist bankruptcy, belong to DTEL.

[11]              Generally, on being sued by a creditor, a guarantor’s liability is limited to the sum for which the debtor would be liable. Accordingly, the guarantor can rely on set-offs or counterclaims which the debtor possesses as against the creditor. Here, DTEL is not able to rely on a set-off in respect of the rent it owes to Mr Dennis because it committed in its contract with him not to do so.

[12]              While DTEL could commence an independent proceeding against Mr Dennis, it could not set up that claim as justification for not paying rent, nor can Mr Goode

2      Brown’s Real Estate Ltd v Grand Lake Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141.

rely on such a claim to defend the bankruptcy proceedings. Mr Goode is in no better

position in relation to DTEL’s claims against Mr Dennis than DTEL.

[13]              The existence of any claim DTEL has against Mr Dennis is not a basis for  Mr Goode to defend the adjudication application.

The compromise

[14]              Mr Goode said he reached a compromise with Mr Dennis after the entry of judgment against him and after Mr Goode had applied to set aside the default judgment. Mr Goode says he was on his way to serve the application to set aside at Mr Dennis’ solicitors when he met him. Mr Goode says an agreement was reached that if Mr Goode paid Mr Dennis’ out-of-pocket legal expenses, that would be an end to the matter. Mr Dennis denies this agreement.

[15]              There is evidence that Mr Goode paid the sum of $3,911.50 which represents half the costs recorded in the judgment.  Mr Goode does not say the deal was that  Mr Goode would pay half and Mr Ilagan the other half. Mr Ilagan has not paid his half and nor has Mr Goode paid it to date, despite recognising at a prior call of this proceeding that in the absence of the second half being paid, he would have to make payment.

[16]              Ultimately, Mr Goode elected at the hearing not to pursue the compromise issue given the outcome of discussions at the outset of the hearing.

[17]              Even had this agreement existed, it was not satisfied. In substance, Mr Goode says the agreement was that if Mr Dennis received payment of his out-of-pocket costs, he would not pursue the full debt. The full amount of the costs was never paid.

Release of charging order over co-guarantor’s property

[18]              Mr Goode refers to Mr Ilagan having sold his property and it being his understanding there was sufficient equity in Mr Ilagan’s property to permit Mr Dennis to  recover the judgment  debt  in  full under the charging order registered against  Mr Ilagan’s property.

[19]Mr Dennis’ evidence on this issue is as follows:

44.After I got Mr Ilagan’s written statement, I got advice on whether we had to pursue Mr Ilagan or could focus on Mr Goode instead given Mr Ilagan was not director or a shareholder of D-Tech and had left D-Tech by the time D-Tech stopped paying rent. The advice I got was that the guarantee was joint and several so we could choose who we wanted to pursue.

45.Based on Mr Ilagan’s claims in his written statement, we have elected not to pursue him in relation to the debt and released the charging order we had over his home.

[20]              What this evidence means is that Mr Dennis as creditor, released a security he held in respect of the guaranteed debt.3 If the creditor releases a security without the consent of the guarantor, the latter’s liability under the guarantee is discharged from not absolutely, but pro tanto: National Bank of New Zealand v Murland [1991] 3 NZLR 86. [A guarantor] is entitled to the benefit of all securities held in respect of the guaranteed debt ...4

[21]              ‘Securities’ in this context is given a wide meaning.5 A creditor is obliged to deal with the security which it holds in a reasonable manner so as to ensure that the maximum benefit can be derived from it to satisfy the guarantee obligation.6

[22]              Here, Mr Dennis rather than meeting this obligation, released a security he held without requiring any payment.

What would the position be if the charging order had not been released?

[23]              If the charging order had not been released, Mr Dennis would have recovered his judgment debt in full. Mr Ilagan, having paid more than his share of the guaranteed debt, would have been entitled to recover by way of contribution, half of the amount he paid from Mr Goode. If the charging order still existed, Mr Goode upon paying the judgment debt, would be entitled to the security. However, in enforcing that security

3      Geraldine Andrews and Richard Millett Law of Guarantees (7th ed, Sweet and Maxwell,  London, 2015) at [11-022].

4      At 497.

5      At [14-001].

6      At 561.

as against Mr Ilagan as a co-guarantor, Mr Goode could only recover 50 per cent of what he had paid out.

[24]              I am satisfied that Mr Goode has been prejudiced to the extent of 50 per cent of the judgment debt. I consider Mr Goode has a defence to the bankruptcy proceeding as to half of the judgment debt. I raised this issue and the texts referred to in the footnote of this aspect of the judgment, with Mr Cowan, counsel for the judgment creditors, at the outset of the hearing on 18 September 2023. Mr Cowan properly sought a brief adjournment to review the authorities and take instructions. Having done so, Mr Cowan recognised the merit of this point. With reference to Re Gate,7 Mr Cowan accepted that a charging order is a security for the purposes of the Insolvency Act 2006.

[25]I consider Mr Cowan’s acknowledgment to be a proper and responsible one in

the circumstances.

[26]              Accordingly, Mr Goode is liable for half the judgment debt, less the amount he has paid of $3,911.50.

Interest

[27] The certificate of judgment records an interest liability as set out at [6] above. At the Court’s request, Mr Cowan arranged for a copy of the statement of claim filed in the District Court to be produced. The statement of claim, in its treatment of interest, did not seek interest in the manner required by s 25 of the Interest on Money Claims Act 2016, which provides:

25. Court may not award interest unless procedural requirements complied with

(1)A court may not award interest under a section of this Act for a period unless the party who claims interest under the section for  that  period specifies the section and, as far as  possible, the  period in  that party’s statement or notice of claim or counterclaim.

[28]McGechan notes:8

7      Re Gate (1996) 9 PRNZ 568.

8      Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [IM25.01].

The procedural requirements of s 25 are very important because they are expressed in mandatory terms.

[29]              Given the mandatory requirements of the Act in respect of interest were not satisfied. Interest should not have been added to the certificate of judgment.

[30]              I note that interest was not included in the sealed judgment of the Court, the interest component of the certificate of judgment, in my view, is not claimable against Mr Goode. Mr Cowan accepted the correctness of this conclusion.

Goods and Services Tax (GST)

[31]              The GST issue was addressed at the hearing by it being accepted by the creditor that Mr Goode’s company would be entitled to a GST invoice for the rental component of the judgment sum. While the judgment contains an award of costs and a claim for disbursements, those amounts are GST exclusive, given Mr Dennis was GST registered.

Consent orders

[32]              The above matters were discussed at the hearing on 18 September 2023. The end result of the above analysis is that Mr Goode’s liability is:

$23,438.19

Core debt (includes costs)

$1,043.00

Disbursements

$24,481.19

Total

$50.00

Certificate of Judgment

$24,531.19

TOTAL

$12,265.59

Divided by two

$3,911.50

Less paid by Mr Goode pursuant to his understanding of

the compromise

$8,354.09

Amount owing by Mr Goode

[33]              The following orders are made essentially as a result of the points accepted by the parties:

(i)The judgment creditors will provide Mr Goode with a GST invoice for the rental component of the original judgment payable by him.

(ii)Mr Cowan will prepare a notice of satisfaction of judgment pending payment of the amount identified above.

(iii)Mr Goode will pay the amount identified above along with the costs   I set out below, no later than 21 October 2023.

(iv)This   proceeding   is    adjourned    to    the    bankruptcy    list    on   9 November 2023. If Mr Goode has not paid the above sum plus the costs set out below by that date, he will be bankrupted on that date given an act of bankruptcy has occurred. (Mr Cowan is to move to fix costs promptly and give notice of the figures to Mr Goode).

Costs

[34]              Mr Cowan argued that indemnity costs would be appropriate or, at the very least, an uplift on scale given that Mr Goode, through acting in person, raised a number of issues which were ultimately irrelevant. Much of Mr Goode’s material related to claims in relation to the state of the premises, the actions of the judgment creditors’ property manager, and the alleged early re-entry. Mr Cowan considered the creditor had to deal with those matters, notwithstanding the presence of the no set-off clause. That Mr Goode had given notices of cross-examination in respect of various witnesses only added to preparation costs.

[35]Mr Cowan also noted that in respect of Mr Goode’s unsuccessful application

to set aside the bankruptcy notice, costs were reserved and should now be fixed.

[36]              Mr Goode resisted costs. He has had some success. Mr Goode questioned the claimability of interest and complained that the charging order over Mr Ilagan’s property had been released without payment being received. While it was left for the Court to analyse the legal implications of those circumstances, there is an argument that the judgment creditors’ legal team should have considered those issues.

[37]              I come back to the fact that even on Mr Goode’s best day in Court, that is, he had succeeded on his claim that a compromise had been reached, which might be called, Mr Ilagan’s half share of the debt had not been paid. During one of the list

appearances before me, Mr Goode accepted that he would need to pay the outstanding half share. That had not occurred by the time of the hearing on 18 September 2023 and so Mr Goode was always going to have an amount outstanding under the bankruptcy notice, albeit one significantly less than the amount claimed.

[38]              Mr Goode complains that the first thing he knew about any balance outstanding to the judgment creditors was when he received the bankruptcy notice. He says he was not written to beforehand calling for payment. In some circumstances, a failure to send a letter before action can mean no costs are awarded.9

[39]              I order Mr Goode to pay costs on a 2B basis plus disbursements as fixed by the Registrar through to the conclusion of the application to set aside the bankruptcy notice.

[40]              As to costs in respect of the adjudication application, there has been split success. Once the legal implication of the issues raised by Mr Goode (that is, the issue of interest and the release of the co-guarantor’s charging order) were identified, he agreed to pay the sum due – being just under 30 per cent of the amount claimed in the adjudication application.

[41]              Costs for the remainder of the proceeding shall lie where they fall. A letter calling up the debt before the parties were committed to litigation should have been sent, particularly when the creditor had other means of collecting the debt, having had a charging order over Mr Goode’s home.10 Use of the bankruptcy proceeding for debt collection as an alternative means of debt collection is not permitted.11 In my view, the award of costs on the challenge to the bankruptcy shows a fair balance overall.

[42]              The costs must be paid by the date of the next adjournment. I record that part of the trade-off for the judgment creditors allowing a month to pay a relatively modest amount was that it would receive payment of the costs at the same time.

9      Cartref Remuera Trustee Ltd v Le [2023] NZHC 256.

10     I was not told if the charging order over Mr Goode’s home had lapsed by the time of the bankruptcy notice.

11     Hopkins v Hopkins [2023] NZHC 2264 [4] to [8].

Addendum

[43]              Following the hearing on 18 September 2023, Mr Cowan filed a memorandum on 19 September 2023 seeking to make further submissions in respect of the nature of the charging order held by Mr Dennis. At the hearing, Mr Cowan accepted Mr Dennis had held security for the judgment debt, being the charging order over Mr Ilagan’s property. Mr Cowan having reflected on that position sought to retreat from that concession. The circumstances in which counsel can retract a concession are very narrow.12 Mr Cowan did not seek leave to file further submissions after the end of the hearing but before judgment as required by r 11.8A of the High Court Rules 2016.

[44]              I am satisfied that the matters raised by Mr Cowan do not justify revisiting the position reached during the hearing. I hold that view for the following reason.

[45]              Mr Cowan’s further memorandum focused on whether a creditor who holds  a charging order over the property of a debtor is a secured creditor for the purposes of being entitled to request a bankruptcy notice. In that context, a charging order is treated as a “stop order” and does not prevent a creditor pursuing bankruptcy.13

[46]              However, Mr Goode was not arguing Mr Dennis held a security that meant he was not entitled to request a bankruptcy notice. Mr Goode argued that Mr Dennis’ release of Mr Ilagan’s charging order caused him prejudice. In the context of the duties owed by a creditor to a guarantor, the term security is given a wide meaning by the Court, as noted above at footnote 5.

[47]              Accordingly, in my view, the error in Mr Cowan’s further submissions is that it seeks to apply the narrow interpretation of security that applies when determining whether a creditor with a charging order is a secured creditor for the purposes of requesting a bankruptcy notice in the context of a creditor’s obligations to a guarantor in relation to security where that term is given a wide meaning.

[48]Accordingly, Mr Cowan’s further memorandum does not cause me to reach

a different view to that set out above.

12     Otago Station Estates Ltd v Parker [2005] NZSC 16.

13     Far North District Council v Pollock [2014] NZHC 2473.

[49] Finally, on 21 September 2023, Mr Cowan filed further submissions, again without leave seeking to revisit the position reached on the interest point on the basis an oral application to amend the statement of claim in the District Court referred to at [27] above may have been made. I would have expected the file maintained by Mr Cowan’s firm in respect of the District Court proceeding would have included a file note if such an oral application had been made and the Court’s ruling on that application. Again, the sealed order does not refer to interest or an order granting an oral application to amend the statement o claim. I decline leave for further submissions to be made on this point.

Associate Judge Lester

Solicitors:
Cavell Leitch, Christchurch

Copy to:
Mr B Goode