Equity Law Barristers Limited v Haden

[2014] NZHC 3356

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001848 [2014] NZHC 3356

IN THE MATTER

of the Insolvency Act 2006, and in the

matter of the bankruptcy (or proposal, as the case may be) of

BETWEEN

EQUITY LAW BARRISTERS LIMITED Judgment Creditor

AND

GRACE HADEN Judgment Debtor

Hearing:	15 December 2014
Appearances:	Mr M G Locke and Ms J Leenoh for the Respondent Ms Haden the applicant in person
Judgment:	19 December 2014

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

19.12.14 at 4 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

EQUITY LAW BARRISTERS LIMITED v HADEN [2014] NZHC 3356 [19 December 2014]

Background

[1]      Mr E Orlov was formerly the lawyer acting for Ms Haden, the judgment debtor, in regard to matrimonial and other matters.  A number of bills of costs were invoiced to the judgment debtor in relation to legal services supplied which spanned the period 2009 to 2010.  The invoices were raised by “Equity Law, P O Box 8333, Symonds Street, Auckland”.  They required payment to “Equity Law” bank account (with details provided).

[2] The judgment debtor took exception to these bills of costs and in due course a National Standards Committee enquired into the matter under s 161 of the Lawyers and Conveyancers Act 2006. In its subsequent determination the Committee described the judgment debtor as the “complainant” and the other party to the dispute as:

Lawyer:  Evgeny Orlov of Equity Law Barristers Limited.

[3]      The Committee in its decision apparently viewed the complaints as being of

substance.  It ordered “Mr Orlov” to “reduce his fees in regard to invoices 205 and

206”.  It ordered him to refund to her the sum of $28,962.97 and ordered him to pay costs.

[4]      Subsequently Mr Orlov applied to have the Legal Complaints Review Officer (“LCRO”) look into the matter that took place with the result that on 3 October 2014 the LCRO set aside the decision of the National Standards Committee.  Counsel for the judgment creditor who advised me at the hearing of this application of the outcome of the review by the LCRO described the decision as confidential.  A copy was not in evidence before me.  However, the judgment debtor did not dispute that events had occurred in the way in which counsel described them.

[5]      Prior to the point where the LCRO set aside the determination of the National Standards Committee, the judgment debtor in an attempt to enforce the decision of the National Standards Committee served a statutory demand upon the judgment creditor.   It was apparently assumed that the judgment creditor had been the party

which invoiced her and would be the party to which she would look for reimbursement of the monies which the National Standards Committee said she was entitled to be paid.  However, the judgment creditor disputed that it was in fact the entity  concerned  responsible  to  make  payment  and  it  applied  to  set  aside  the statutory demand.   On 5 February 2014 the application to set aside the statutory demand came before the Court on its first call date and was considered by Associate Judge Abbott.   The Judge issued a minute in which he noted that the judgment debtor had not opposed the application to set aside the statutory demand but that she had  appeared  in  order  to  be  heard  on  the  question  of  costs  in  relation  to  the application for statutory demand which was in dispute.   The Judge set out a brief history of the matter and then said:

[2] … The difficulty for Ms Haden is that [the orders of the National Standards Committee of the New Zealand Law Society] were made against Mr E Orlov, a principle [sic] of the applicant (at least at that time) rather than against the applicant.

[6]      The minute continued:

[3]       Ms Haden contacted the applicant immediately when the application was made to advise that she would not be pursuing the demand (the documents in the affidavit in support make it clear that there is no basis for the demand against the applicant).  However, by that time the applicant had had to issue the application to comply with the statutory time frame.

[7]      The Judge then considered the dispute as to costs and concluded that the judgment debtor should pay costs on a 1A basis.  Subsequently the order was sealed which reflected that costs determination together with disbursements, with the total amount of the judgment being entered for the sum of $3,190.  There was no appeal from the minute of Associate Judge Abbott.

[8]      Payment not having been made of the costs ordered, the judgment creditor served a bankruptcy notice on the judgment debtor on 4 August 2014.  The judgment debtor in turn filed an application to set aside the bankruptcy notice on 5 August

2014.   The grounds upon which she sought an order setting aside the bankruptcy notice were stated to be:

(a)       A valid set-off exists;

(b)       That this is an abuse of the Court process;

(c)       Is vexatious.

[9]      The judgment creditor filed a notice of opposition dated 19 August 2014. The central part of that document stated that the judgment debtor could not avoid paying the costs judgment on the basis of set-off because the claim that the judgment debtor  referred  to  was  in  relation  to  Mr E  Orlov personally as  opposed  to  the corporate entity, Equity Law Barristers Limited, the judgment creditor.  An affidavit in support of the notice of opposition was sworn by Mr Orlov on 19 August 2014 which effectively stated that there could not be any debt owed by the judgment creditor to the judgment debtor because the debt was “in relation to me personally” and was not owed by the judgment creditor.

[10]     By way of additional background it is to be noted that Mr Orlov was struck off as a solicitor and his name ordered to be removed from the High Court roll of solicitors but that that order was later reversed by the High Court.  Mr Orlov does not, however, at the present time have a practicing certificate.

[11]     I will give further consideration to the evidence which is relevant to the question of just who the legal entity was that the judgment debtor retained, namely Mr E Orlov or the judgment creditor company.

Requirements for order setting aside bankruptcy notices

[12]     The particular ground upon which the judgment debtor seeks the making of an order setting aside the bankruptcy notice is stated in the standard form notice in the High Court Rules as follows:1

(c)       you must satisfy the High Court that you have a counterclaim, set- off, or cross-demand against the judgment creditor—

(i)       that equals or exceeds the amount claimed by the judgment creditor; and

(ii)      that you could not put forward in the action or proceeding in which the judgment or order was obtained.

[13]     In the decision of Sharma v ANZ Banking Group,2  the Court of Appeal said that a debtor in the position of the judgment debtor has to demonstrate that she has a genuine and triable claim of “true substance”.3

[14]     I also respectfully agree with the statements of Associate Judge Osborne in

Carr v Main Farm Limited that:4

[13]     The setting aside jurisdiction under s 17 of the [Insolvency] Act depends for its operation upon a degree of mutuality between debt and cross demand. In Re Elvin, ex parte Sandilands, Gallen J elaborated on the degree of mutuality in these terms:

There must be some coincidence, some nexus or correlation between the circumstances out of which the opposing claims arise, some relationship between the parties and this must to some extent be a pragmatic decision which needs to be considered in relation to each particular case.

….

[24]     The judgment of the Court of Appeal in Re Elvin, ex parte Sandilands indicates that to meet the requirements of s 17 of the Act (s 19 of the Insolvency Act 1967) there must be mutuality of both parties and circumstances in respect of the opposing claims.

[15]     It is in relation to the requirement of mutuality of parties that the judgment debtor faces difficulties in this case, as I shall explain below.  There is also the question of whether there is in fact a set-off available to her.  Before dealing with that issue, there is a prior matter that the judgment debtor raised concerning the fairness of the circumstances in which the Court made the costs order against her.

Fairness of making costs order

[16]     The judgment debtor submitted to me that the costs order which is the basis for the bankruptcy notice ought not to have been made because she was not given fair notice that such an order was going to be made.

[17]     Whatever the merits of that submission are, they do not assist the judgment debtor in my view because no application was made to appeal the order that Associate Judge Abbott made.  It is now in my view too late to raise this aspect of the matter.

2   Sharma v ANZ Banking Group (1992) 6 PRNZ 386 (CA).

3  At 389.

4   Carr v Main Farm Ltd (in rec) [2013] NZHC 222.

The alleged set-off

[18]     Ms Haden responds to the ground in the notice of opposition to which I made reference at [9] by submitting that she contracted with “Equity Law Barristers”.  No copy of the retainer agreement was put into evidence.   The invoices which were issued to the judgment debtor were issued on a letterhead which included the words:

“Equity Law Barristers”.

[19]     While that was the case for at least one invoice,5 an earlier invoice dated 30

September 2010 was simply headed “Equity Law”.   The address of the invoicing party was given as Level 4, Newcall Tower, 44 Kyber Pass Road.  It is accepted that that is the same address which Mr Orlov carried on practice as a barrister.

[20]     There   is   no   doubt   that   the   judgment   creditor   was   incorporated   on

19 December 2006 and that it was in existence prior to the date when the relevant invoices were issued.

[21]     I have already mentioned the remarks that Associate Judge Abbott came to and which he expressed in his minute of 5 February 2014 that the orders of the National Standards Committee were made against Mr Orlov, and not the judgment creditor.

The difficulty for Ms Haden is that those orders [of the National Standards Committee] were made against Mr E Orlov, a principal of the applicant (at least at that time) rather than against the applicant.

[22]     It was not, however, suggested that Associate Judge Abbott’s remarks would give rise to an issue estoppel on the point of the entity with whom the judgment debtor contracted when she sought legal services.

[23]     But the key issue that needs to be determined is the question of whether the judgment debtor has demonstrated that she has a claim of true substance that she can set off against the judgment creditor.

[24]     In my view the evidence is quite equivocal as to whether that stage has been reached.  It is possible that the judgment debtor will be able to eventually establish that it is the obligation of the judgment creditor to reimburse funds to the judgment debtor.  That would require amongst other things that the judgment debtor establish that it was the judgment creditor who invoiced for the legal services that Mr Orlov provided, that it was the judgment creditor to whom she made the payments, and that she will be able to persuade the National Standards Committee that the fees charged were excessive and that the judgment creditor ought to be directed to make reimbursement.  All this is possible but it is certainly not demonstrated that there is a good chance that the judgment debtor will achieve such a result.

[25]     It is also necessary for the judgment debtor to demonstrate that not only is there a party against whom she has a set-off, but she also needs to provide some material showing that there is a set-off that can be assessed in approximate monetary terms which would, if established, mean that she was not obliged to comply with the terms of the bankruptcy notice which the judgment creditor served upon her.  Again there is a very real deficit of information upon which the Court can assess this aspect of the matter.

[26]     The  result  of  the  determination  of  the  National  Standards  Committee requiring a reduction in Mr Orlov’s fees was authoritative in the sense that it was binding upon him and it affected the state of the accounts between himself and the judgment debtor.  Had the determination of the National Standards Committee stood, there would have been a legally binding obligation on the part of Mr Orlov to refund certain amounts of money which are greater than the amount that the judgment

creditor is claiming from her.6     However, the effect of the determination of the

LCRO apparently displaces those orders.  The position is that the judgment debtor, if she wishes to, will be involved in a further hearing to determine whether similar orders should be made for a second time.   Despite the judgment debtor’s hope to persuade the Court that Mr Orlov had overcharged her by referring to some of the evidence, I do not consider that this Court can satisfactorily come to a conclusion as to whether she is right about that and whether it is likely that she will obtain an order

directing a reimbursement to her.  There is therefore a second point of doubt about the proposed set-off that the judgment debtor puts forward.

Abuse of process and related points

[27]     The judgment debtor also put forward as one of the grounds for setting aside the bankruptcy notice that it was an abuse of process.  Assuming for the purposes of argument that there is the jurisdiction to set aside a bankruptcy notice on the grounds that  it  is  an  abuse  of process,  I do  not  consider  that  that  argument  assists  the judgment debtor in the circumstances of this case.  The abuse of process which she contends  for  allegedly  arises  from  the  circumstance  that  while  she  has  other litigation on foot with Mr Orlov, the judgment creditor which is associated with Mr Orlov is using the processes of the Court to extract a sum of money from the judgment debtor which will hamper her in conducting the other litigation to which Mr Orlov is a party.

[28]     I consider that a common sense assessment is called for to determine whether there is anything in this point.  The background to the issue of the bankruptcy notice suggests that the contentions which the judgment debtor puts forward are not correct. The judgment creditor had no involvement in litigation with the judgment debtor until she served a statutory demand upon it on the erroneous basis that the company was interchangeable as a legal entity with Mr Orlov who was associated with it.  The judgment  creditor  then  sought  and  obtained  an  order setting aside  the  statutory demand and an order for costs.

[29]     It cannot be the case that the judgment creditor contrived to put itself in the position where it would be able to enforce the costs order against the judgment debtor for the purposes of hindering her with regard to the other litigation that she had against  Mr Orlov.   Not only is there no  evidence that that is so, but it is inherently improbable that it would have happened that way.  Further, having regard to the relatively modest amount of the costs order which was a little over $3,000, and having regard to the financial position of the judgment debtor who apparently owns a house property in Epsom and carries  on a business, it would seem  to be most unlikely that the principals of the judgment creditor would have formed the view that

enforcing that costs order would effectively bring her to her knees in a financial sense and thus prevent her from continuing with her litigation against Mr Orlov. There is even greater force in that contention when it is borne in mind that the judgment debtor almost invariably represents herself and does not have to pay a lawyer.

[30]     In my view there is no basis upon which it is even arguable that an abuse of process has occurred here.  The more likely explanation is that the judgment creditor has a liability to the lawyer who represented it on the application to set aside the statutory demand, that is Mr Bogiatto.   Recovering the amount of the costs order would go some of the way to paying the legal fees which were presumably generated by retaining counsel for that purpose.

[31]     Nor does it seem likely that the issue of the bankruptcy notice was vexatious. The debt which the judgment creditor is seeking to recover was a legitimate one and it is understandable that the judgment creditor would want to recover the amount of the costs order having regard to the circumstances which I have just mentioned. Recovering the sum of $3,190 could hardly be described as involving trifling or insignificant matters.

Orders

[32]     For the reasons I have set out above I do not consider that the judgment debtor has a claim of true substance that she is entitled to a set-off for a sum which equals or exceeds the amount claimed in the bankruptcy notice.

[33]     The  result  is  that  the  court  dismisses  the  application  to  set  aside  the bankruptcy notice.

[34]     The parties should concur on the matter of costs and if they are unable to agree, they are to file memoranda not exceeding five pages on each side within 10 working days of the date of this judgment.

J.P. Doogue

Associate Judge