Dilworth Trust Board v Wright
[2017] NZHC 2282
•6 November 2017
IN THE HIGH COURT OF NEW ZEALAND
TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV 2017-470-000010
[2017] NZHC 2282
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of NEVILLE MAXWELL BRIGHT
BETWEEN
DILWORTH TRUST BOARD
Judgment Creditor
AND
NEVILLE MAXWELL BRIGHT
Judgment Debtor
Hearing: 20 September 2017 and 31 October 2017 Appearances:
B Saldanha for the Judgment Creditor K J Patterson for the Judgment Debtor Ms Braithwaite for BNZ
Judgment:
6 November 2017
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
06.11.17 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
DILWORTH TRUST BOARD v N M BRIGHT [2017] NZHC 2282 [6 November 2017]
Background
[1] On 21 August 2016 judgment was by consent entered against Mr Bright and his company New Market International Motor Inn Limited (NIMI) for $188,522.41. The amount comprised unpaid rent arrears owed to Dilworth Trust Board (Dilworth) while he leased its motel (Dilworth Motel).
[2] On 17 February 2017 Dilworth served a bankruptcy notice on Mr Bright. He did not comply with that nor did he apply to set it aside.
[3] On 17 May 2017 Dilworth’s adjudication application was served on Mr Bright. On 23 June 2017 Mr Bright filed a notice of opposition to the adjudication application. It is Mr Bright’s position that he believed he had a counterclaim or set off in terms of plant and chattels of his left at Dilworth’s Motel when he vacated the premises. Mr Bright’s belief was that it would be agreed by Dilworth and/or its new tenant that the use of that plant and those chattels would be paid for and that payment would offset any debt owed to Dilworth.
[4] The first day of hearing of this matter was on 26 June 2017. On 13 September 2017 NIMI and Mr Bright applied to set aside Dilworth’s judgment. The Court then directed a first call of that application would be scheduled for consideration at the same time the Court heard Mr Bright’s opposition to the adjudication application.
Opposition to the adjudication application
[5] It is submitted on behalf of Mr Bright that there is clear evidence of a substantial asset being owned by the Mr Bright which is available for repayment of the debt if the Court did allow Mr Bright re-entry to the motel to uplift all the plant and chattels and to sell them on the open market or to sell them either to Dilworth or the existing tenant.
[6]Mr Patterson for Mr Bright submits inter alia:
a)Mr Bright is able to pay his debts; and
b)It is just and equitable the Court does not make an order for adjudication.
c)It is Mr Bright’s case that the interests of the BNZ also need consideration because NIMI provided that bank with a general security agreement over all its assets – those comprising the plant and chattels in the motel – which Mr Bright guaranteed.
[7] On 15 September, the BNZ filed a notice of intention to appear in support of the application to adjudicate Mr Bright bankrupt. The Bank notes Mr Bright owes the Bank the sum of $172,406.65 for which sum judgment was entered against Mr Bright and in favour of the Bank on 20 April 2017.
[8]It is Mr Patterson’s submission that the BNZ is “very interested to see that the
value of the plant and chattels is properly realised and dealt with”.
[9] Mr Bright claims he is able to pay his debts by the sale of all assets of his and NIMI remaining in the Dilworth Motel. These he estimates to have a value of approximately $329,000 a value he says that is confirmed by an independent person.
[10] It is Mr Bright’s case that Dilworth has refused to acknowledge his ownership of the plant and chattels which remain at Dilworth’s motel still. Those chattels he says are now being used by Dilworth’s new tenant and therefore they have a rental value which should be accounted for to him.
[11] Evidence of ownership is, it is claimed, identified by the deed of lease and that clause 50 of the lease sets out the terms on which the parties acknowledge the existence of these chattels. Because Dilworth denies it ever owned the chattels therefore and on exiting the lease those chattels remained in NIMI’s ownership. Also, it is submitted that because Dilworth’s lease terms indicated it provided no warranties with regard to the supply of chattels or plant used in connection with the motel business, that it was for the lessee therefore to confirm ownership issues.
[12] It is Mr Bright’s position that because Dilworth cannot and does not assert ownership over those chattels therefore they are owned by NIMI who had used them for the previous 18 months prior to the lease coming to an end.
[13] In the circumstances, it is Mr Bright’s position that Dilworth cannot deny that NIMI did own the plant.
[14]Also, it is Mr Bright’s position that his adjudication would be pointless because
he has no other assets of significance.
[15] Mr Bright is a 78-year-old pensioner living on a pension with his wife. Bankruptcy, it is submitted, would curtail his ability to be a director of a company and that would have a significant negative impact on NIMI.
[16] If Mr Bright was bankrupted and NIMI was unable to recover the assets it says belong to it then Dilworth and/or its tenant would receive a windfall of all of the plant and chattels that remain in the motel.
[17] Mr Patterson submits therefore it would be just and equitable not to make an order for adjudication.
[18] It is submitted Dilworth “has without commercial moral conscience chosen to obfuscate the actual ownership position shielding behind their lawyer’s rhetoric and letters all the while proceeding through with their adjudication plans which it is submitted is uncharacteristic of the underlying principles of a charitable trust”.
[19] As an alternative, it is submitted this proceeding should be halted to allow time for the assets to be removed and sold, for which two months would be required.
Dilworth’s response
[20] In May 2016 Dilworth commenced summary judgment proceedings against NIMI and Mr Bright in respect of rent arrears. On 1 August 2016 judgment was entered by consent against NIMI and Mr Bright. Mr Bright claims his consent was on the basis that a credit would be given in respect of chattels, whether by payment of
rent for use of them or by sale; and that there was an arrangement where his chattels were allowed to remain on the premises in exchange for payment of rent by Dilworth for the use of them in running the motel business; and that Dilworth owes Mr Bright
$38,000.
[21] At the time of the summary judgment proceedings NIMI and Mr Bright were represented by counsel, Ms Adams of Adams Law. The negotiations leading to judgment by consent were detailed in the affidavit of Ms Greenwood from which it is clear that Ms Adams confirmed that NIMI and Mr Bright would not oppose summary judgment being entered against them on the condition that costs could be agreed and that enforcement of the judgment would not occur for six weeks after it was entered in order to enable Ms Adams clients to make a payment proposal. That proposal was subsequently confirmed, and agreed to by letter dated 22 July 2016 from Dilworth’s lawyer – which also said that Dilworth would be entitled to enforce the judgment in the usual way if a payment proposal was not agreed within this time. It was on that basis the draft joint memorandum seeking judgment by consent was included and which was duly signed. It was that joint memorandum which was endorsed by order of the Court entering judgment on 1 August 2016.
[22] Ms Saldanha for Dilworth says no payment proposal was forthcoming and no payment was received and it was not until service of the adjudication application that issues were raised regarding Mr Bright’s consent to the judgment entered against him. Further the judgment has not been appealed and only one week before this matter was to be heard was an application made to set aside the judgment.
[23] Counsel submits Mr Bright has only by his notice of intention to oppose, alleged for the first time there was an arrangement or agreement concerning his chattels being allowed to remain on the premises in exchange for the payment of rent due or for the use of those chattels in the running of the motel business.
[24] Mr Bright’s reference to chattels is a reference to plant (Plant) which is defined in clause 50 of the lease:
The Tenant acknowledges that there are certain chattels and items of plant used in connection with a motel business, situated in the premises, as generally
set out in the Seventh Schedule (“Plant”). The Tenant acknowledges and accepts that the Plant (or any part of it) is/may be the subject of one or more registered security interests on the PPSR in respect of Pacific Rose Motel Limited and/or Double Tree 2004 Limited as debtors (“PPSR charges”), and that the secured parties under the PPSR charges may enforce their rights under the PPSR charges against the Plant (or any part of it) including seizure. The Tenant acknowledges and agrees that the Landlord does not have any responsibility for, nor does it give any warranty in respect of, the Plant. The Tenant agrees that it uses the Plant (or otherwise deals with it) at its own risk, and it is the Tenant’s responsibility for agreeing the terms of ownership or other matters pertaining to the Plant (or any part of it) with the relevant secured parties under the PPSR charges, as applicable.
[25]In respect of the plant Dilworth submits:
a)Under its lease with NIMI Dilworth does not have possession or ownership of the plant or any responsibility for it, and therefore was not able to enter into any agreement with Mr Bright as to the rent or sale of it;
b)Dilworth did not in fact enter into any arrangement with Mr Bright to rent or sell the plant;
c)There is no evidence as to ownership of the plant by Mr Bright;
d)In any event, it is not appropriate for Mr Bright to now bring any claim as to ownership.
[26] It is Dilworth’s position that tenants take the plant as is and it is the responsibility of the tenant to ascertain ownership interests. Dilworth asserts that the lawyers who acted for NIMI and Mr Bright also acted for a Mr Gary Sword of D & E Buses Ltd, and wrote to Dilworth on Mr Sword’s behalf asserting ownership in the plant. Dilworth’s response was it did not sell the lease or otherwise assign any rights to the plant; and that it was the lessee’s responsibility to confirm which chattels were unencumbered and to confirm ownership issues with regard to the chattels and the plant. Mr Sword’s lawyer accepted this position and Mr Sword was subsequently allowed to remove the plant that he and D & E Buses Ltd had an interest in.
[27] That correspondence submits counsel, makes it clear that Dilworth did not claim to have any interest in the plant and that any matters as to ownership were for the new tenant to ascertain. Therefore, if Mr Bright wishes to assert an ownership interest in the plant it is up to him to discuss this with the new tenant and that it will be for the new tenant to ascertain what those ownership interests might be; but that this does not affect the position of Dilworth as landlord, and not in the context of it seeking to enforce judgment for unpaid rent arrears.
[28] There are, counsel submits, no particulars as to any arrangement or agreement with Dilworth as Mr Bright asserts – it is mostly about his intentions and understanding of things which fall far short of there being any agreement.
[29] Counsel submits Mr Bright has provided a list of chattels to which he claims ownership but has provided no sufficient evidence to prove his claim of an ownership interest or as to the value of $329,000 he asserts.
[30] Counsel submits that it is clear that many of the items of the premises were already there before NIMI and Mr Bright took over the lease and that Mr Bright came in and took the plant over as it was.
[31] Counsel submits it is not appropriate for Mr Bright to raise any claim about ownership in the context of this adjudication because these claims come very late in the enforcement process and should be regarded with scepticism.
[32] Mr Bright’s claims of ownership have been subject to correspondence prior to Dilworth commencing summary judgment proceedings. When the bankruptcy notice was served on Mr Bright he then also had a chance to dispute ownership of the plant by making an application to set aside the bankruptcy notice. He did not do so.
[33] Counsel submits there is simply insufficient evidence to support a claim as to ownership.
Adjournment of hearing
[34] At the conclusion of counsels’ submissions, the Court adjourned the hearing until 31 October 2017. It was the Court’s expressed view then that although Mr Bright’s opposition to the application would likely fail, he should be granted an opportunity to recover those assets he says were his in order to sell them to pay Dilworth’s debt.
[35] Before the matter was recalled a further affidavit by Ms Sussman dated 20 October 2017 was filed and served on behalf of Dilworth. It advises that a week earlier Dilworth’s counsel was contacted by a Mr Hayes, counsel for Mr Sword and D & E Buses Limited; that Mr Hayes advised D & E Buses Limited claimed ownership of the motel chattels and was currently involved in legal proceedings in the District Court with the current tenant of Dilworth’s motel, Sumitra NZ Limited, to recover those chattels. Later Mr Hayes informed counsel of BNZ’s claim of an interest in the chattels by virtue of a registered General Security Agreement.
[36] Ms Sussman’s recent affidavit attaches a memorandum dated 11 October 2017 from counsel for the defendant Sumitra NZ Ltd in the District Court proceeding. That memorandum offered reasons why a hearing of the District Court proceeding ought to be delayed to consider whether Mr Bright and his company ought to be joined as parties to the District Court proceeding.
[37] Mr Hayes email to Dilworth’s counsel on 13 October 2017 records that he represented D&D Buses and:
D&D Buses are suing Bright currently in Tauranga DC for recovery of a security interest in the horse truck. The day before hearing that case on 15 August 2017 he was bogged down by allegations that the documents granting the PPSR right was a forgery so we are having to get the Police forensics verify it. We are also in litigation with the lessee of the motel owned by Dilworth seeking to recover the chattels from the operator Sumitra NZ Limited on the basis my client owns the chattels.
The chattels are now of minimal value having been worn out by Sumitra and more importantly they were sold to my client for $18,000 on 21 December 2015. I do not believe the BNZ GSA covers those chattels but I am in discussion with them.
The Bill of Sale dated 21 December 2015 is attached.
[38] In response to Ms Sussman’s second affidavit a further affidavit of Mr Bright was filed on 26 October 2017. Mr Bright’s affidavit primarily focuses upon the claim of Mr Sword and his company D&D Buses Limited to the plant and chattels in question including Mr Sword’s claim they have minimal value and that Mr Bright sold them to him for $18,000.
[39] The focus of Mr Patterson’s submissions was to persuade the Court that Mr Sword and D&D Buses Limited would not succeed in their claim to recover the chattels in question from the existing Dilworth tenant.
Considerations
[40] What is clear to the Court is that issues of ownership remain for determination by the District Court and to date there has been no application by Mr Bright to be joined to those.
[41] Regarding Mr Bright’s assessment of the value of the chattels it is clear that assessment is his own. The Court does not agree that adequate verification of that value has been provided.
[42] Claims that Dilworth operated a motel business from the premises by using his assets are not correct, for Dilworth is simply just a landlord and it does not operate any motel business and that when the lease with NIMI had been terminated Dilworth did not take over the running of any business at the premises, or collect any rental in respect of the plant. The lease was taken over by a new tenant who runs a motel business from whom Dilworth, as a landlord, collects the rent.
[43] In the beginning by his defence of Dilworth’s claim Mr Bright asserted Dilworth operated a motel business by using his assets. That position supported his claim of a set off. Appropriately that position is no longer asserted. Dilworth was simply a landlord and did not operate any motel business. It is clear from the terms of the lease that no chattels or plant was provided by Dilworth because ownership/use of those was the tenant’s responsibility.
[44] When the lease with Mr Bright/NIMI was terminated, Dilworth did not take over the running of any business at the premises or collect any rental in respect of the plant. The lease was taken over by a new tenant who runs the motel business and from whom Dilworth collects the rent. It is that new tenant who was the defendant in the District Court proceedings brought by Mr Sword and D & E Buses. It is Mr Sword’s case, in that Court, that he acquired those assets (which he values at $18,000) from Mr Bright.
[45] Mr Bright’s claims of an offset or counterclaim have been raised for the first time by his opposition filed in answer to the adjudication application. That occurred six months after the judgment was entered against him by consent.
[46] Not until now has Mr Bright raised issues claiming that there were conditions to his consent of the judgment. There is no evidence at all of those conditions – not by Dilworth’s solicitors file nor, the Court can infer, from Mr Bright’s solicitor’s file. Instead, it is argued that Mr Bright has through NIMI an entitlement to ownership of chattels still used by the current tenant of the Dilworth Motel.
[47] He relies on clause 50 of the lease. It is clear by that clause that issues relating to ownership of chattels are matters for resolution by tenants, and are not about the tenancy obligations of Dilworth.
[48] Mr Bright’s ownership concerns therefore are for him to resolve with the current tenant.
[49] Nevertheless, it is far from clear that NIMI or Mr Bright own the chattels because previously, his own lawyer had, on behalf of another party, recovered some of those chattels in question.
[50] Dilworth does not have any interest in the plant or chattels that Mr Bright/NIMI now claims a right to.
[51]The Court does not accept that those ownership issues should affect Mr
Bright’s obligations to Dilworth. Those issues are unclear as are Mr Bright’s claims
of a value in that property – those claims not being supported by an independent assessment.
[52] It is clear from the lease terms that it is not with Dilworth, but the existing tenant, that ownership issues ought to be determined.
Conclusions
[53] The statutory requirements of s 13 have been made out and Dilworth is entitled to an order for adjudication subject to the discretion of the Court.
[54] It is clear there is no reliable evidence from which the Court can accept Mr Bright is able to pay his debts. Nor does it appear to the Court there are any compelling reasons why adjudication should be refused.
[55] The debt was, as Ms Saldanha submits, incurred in circumstances of commercial dealings for commercial gain. Mr Bright guaranteed his company’s obligations and as sole director, had complete control of whatever arrangements were made by himself or on behalf of his company.
[56] The Court agrees commercial guarantees ought to be honoured and when they are not then the Court should enforce them; that there is real public interest in ensuring a person(s) who gives guarantees in commercial situations are held accountable. Interests of commercial morality and of the general public interest are, in these circumstances, of importance.
[57] The Court does not accept Mr Bright has satisfied the Court that in his case an order for bankruptcy should not be made.
Result
[58]There is an order for Mr Bright’s adjudication.
[59]That order is timed at 4:00 pm.
[60]Mr Bright shall pay Dilworth’s costs on a 2B basis together with
disbursements.
Associate Judge Christiansen
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