Erwood v Maxted
[2012] NZCA 110
•27 March 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA567/2007 [2012] NZCA 110 |
| BETWEEN ROBERT ERWOOD |
| AND JANET MAXTED AND JANET MAXTED AND ALEXANDER JAMES JEREMY GLASGOW AS TRUSTEES OF THE ESTATE OF EDWARD ERWOOD |
| AND THE OFFICIAL ASSIGNEE |
| Hearing: 28 July 2011 |
| Court: O'Regan P, Glazebrook and Arnold JJ |
| Counsel: Appellant in person |
| Judgment: 27 March 2012 at 10 a.m. |
JUDGMENT OF THE COURT
AThe appellant is granted leave to amend his grounds of appeal.
BThe appeal is dismissed.
CThe appellant must pay the first respondents costs for a standard appeal on a band A basis, together with usual disbursements.
REASONS OF THE COURT
(Given by Arnold J)
Table of Contents
Para No
An adjudication of bankruptcy is made [1]
The background to the bankruptcy adjudication [5]
The family home proceedings [6]
The fee proceedings [16]
The course of the bankruptcy proceedings [25]
Basis of appeal [34]
Analysis [40]
Was the bankruptcy notice issued out of the wrong registry? [42]
Should a litigation guardian have been appointed? [51]
A bankruptcy notice against a person known to be solvent? [56]
Other points raised by Mr Erwood [59] Conclusion [70]
Decision [72]
An adjudication of bankruptcy is made
In a decision dated 22 November 2007, Associate Judge Christiansen adjudicated the appellant, Mr Erwood, bankrupt.[1] The bankruptcy petition was brought by Mr Erwood’s sister, Janet Maxted (Mrs Maxted), in her personal capacity and as a trustee with a solicitor, Mr Glasgow, of their brother Edward’s estate (the trustees). The debt which was the subject of the petition was an award of costs made against Mr Erwood in some unsuccessful proceedings that he brought against Mrs Maxted and the trustees in relation to the Erwood family home in Nelson.[2]
[1] Maxted v Erwood HC Nelson CIV-2007-442-331, 22 November 2007.
[2] Erwood v Maxted HC Nelson CIV-2003-442-363, 26 May 2006.
When the bankruptcy notice was issued, Mr Erwood applied to set it aside. Associate Judge Christiansen dismissed his application.[3] Mr Erwood then brought the present appeal against that decision (the bankruptcy notice appeal). Later, when the Associate Judge adjudicated him bankrupt, Mr Erwood filed a separate appeal against that decision, CA631/2007 (the adjudication appeal). The Supreme Court has held that Mr Erwood abandoned the adjudication appeal by a notice filed on 17 December 2007.[4] As will become apparent, this creates some difficulty for us in dealing with the bankruptcy notice appeal.
[3] Maxted v Erwood HC Nelson CIV-2007-442-331, 28 September 2007.
[4] Erwood v Maxted [2011] NZSC 23.
Mr Erwood has long been active in litigation, much of it involving members of his family. He appears to be an intelligent man, with an excellent recall of the details of the various proceedings in which he has been involved over the years and a good understanding of procedural and legal issues. However, he has mental health difficulties and seems to have an inability, as this Court has put it previously, to see the wood from the trees.[5] Although he has retained lawyers to act for him on some occasions, generally he acts for himself. On at least one occasion he had a litigation guardian, although that appears to have created some difficulty.[6] In several instances courts have appointed counsel to assist them. We wish to record our appreciation to counsel assisting on the present appeal, Mr McKenzie QC, for his thorough and thoughtful submissions. Besides undertaking the usual tasks of counsel assisting, Mr McKenzie has given Mr Erwood considerable help in various ways, including in the preparation of Mr Erwood’s own submissions. Although strictly speaking outside the normal role of counsel assisting, this has been of particular value to the Court in this case (and, no doubt, to Mr Erwood) and we are grateful to Mr McKenzie for it.
[5] Erwood v Glasgow Harley [2008] NZCA 572 at [38(a)].
[6] Ibid.
The final introductory comment that we should make is that we allowed counsel and Mr Erwood time to make further submissions. These submissions took some time to be filed. We make no criticism of that, but it does partly explain the delay in the delivery of this judgment.
The background to the bankruptcy adjudication
To explain the issues in relation to the bankruptcy notice appeal, we need to describe in more detail Mr Erwood’s proceedings against Mrs Maxted and the trustees in relation to the family home in Nelson. We will refer to these as the family home proceedings. We will also briefly describe some other proceedings in which Mrs Harley acted as counsel for Mr Erwood in a claim he brought against FAI (NZ) General Insurance Co Ltd (FAI) and the New Zealand Law Society arising out of the collapse of the law firm, Renshaw Edwards.[7] We will refer to these as the fee proceedings. We describe them both because they offer some insight into Mr Erwood’s background and his approach to litigation and because we refer to them in our discussion of the issues in the present appeal.
The family home proceedings
[7] A description of the background can be found in Harley v McDonald [2002] 1 NZLR 1 (PC).
We begin with the family home proceedings. These were commenced on 19 November 2003 “in a somewhat informal way”.[8] Mr Erwood had a room at the family home which was kept for him whenever he happened to be there. Although he regarded the house as his home, he lived away from it for lengthy and frequent periods.[9] In the proceedings, Mr Erwood sought to enforce a trust which he alleged his late mother had declared in a letter she sent to her then solicitor on 3 December 1979. This was to the effect that, following his mother’s death, the family home would be available to him and another brother, Frederick, “at any time they desire, for as long as they wish”.
[8] Erwood v Maxted HC Nelson CIV-2003-442-363, 26 May 2006 at [1].
[9] At [45].
In 1983 Mr Erwood’s mother transferred the house to her eldest son, Edward, who lived with her, having never married. A condition of the transfer was that Edward grant his mother a licence to occupy the house for the remainder of her life. A tenancy deed was entered into recording this arrangement. Mr Erwood’s mother continued to occupy the house until she died in 1993. After she died, Edward continued to live at the house until he died in 2003. Under his will, the house went to Mrs Maxted, who in November 2003 gave Mr Erwood notice to vacate by 7 February 2004 as she wished to sell. This provoked the family home proceedings.
When he issued the family home proceedings, Mr Erwood sought orders that he be represented by counsel and that a litigation guardian be appointed. Following an order by Ellen France J, Mr Woodhouse QC was ultimately appointed as counsel assisting.
As Wild J’s judgment records, it was not easy to get the case to a hearing. Mr Erwood requested the holding of a settlement conference. Three were arranged, but none took place because Mr Erwood sought an adjournment on each occasion. Ultimately the Court concluded that it was pointless to schedule further conferences and directed that the case be set down for trial. Mr Erwood then sought to broaden the role of counsel assisting by having him effectively act as his counsel. In a Minute dated 2 December 2005, MacKenzie J rejected this approach and ordered that the role of counsel assisting be limited to providing such assistance as the Court requested.
Subsequently Associate Judge Christiansen directed that the case proceed before Wild J on 25–26 May 2006. He said that it would not be adjourned for any reason. Mr Erwood renewed his request that that the Court arrange for Mr Woodhouse to prepare and argue his case for him. Wild J issued a minute on 4 April 2006 rejecting that request and gave time tabling directions toward the 25‑26 May 2006 hearing. Then on 28 April 2006 Mr Erwood applied for an adjournment and asked that Wild J recuse himself. Wild J rejected these applications in a minute issued on 5 May 2006, as he did several subsequent adjournment applications made by Mr Erwood. Mr Erwood sought to appeal Wild J’s refusal to adjourn the hearing to this Court, and sought a stay in the meantime. That was refused, however.
When the proceeding commenced on 25 May 2006, Mr Erwood did not appear. He telephoned the Nelson Registry saying that he would be available at the Wellington High Court. Because Mr Erwood had given an unequivocal undertaking in a memorandum to appear for a fixture in late August or September 2006, Wild J sought the views of counsel for the defendants and Mr Woodhouse as to whether the hearing should be adjourned until then. Ultimately, however, he decided to hear the case in the absence of Mr Erwood. Wild J rejected Mr Erwood’s claims and awarded costs against him.
Mr Erwood filed an appeal against Wild J’s decision (CA126/06). He applied to the High Court for a stay of execution of Wild J’s judgment pending determination of his application for legal aid to facilitate the appeal. Ronald Young J granted a stay, subject to two conditions.[10] The first was that if Mr Erwood was not successful in obtaining legal aid the respondents would be entitled to security for the costs awarded by Wild J. In that event, Mr Erwood was to pay the full amount of the costs ordered by Wild J within seven days of the final refusal by the legal aid authorities. The second was that Mr Erwood pursue his appeal expeditiously and comply with the Court’s Rules. In the event, the Legal Services Agency refused Mr Erwood’s application for legal aid, a decision that was upheld by the Legal Aid Review Panel. Mr Erwood then filed an appeal against the Panel’s decision in the High Court.
[10] Erwood v Maxted HC Nelson CIV-2003-442-363, 16 August 2006 at [11].
Mr Erwood did not progress the appeal against Wild J’s decision in a timely fashion because, he said, of the difficulties with legal aid. He was forced to seek an extension of time under r 43 of the Court of Appeal (Civil) Rules 2005 in relation to the appeal. That application was rejected.[11] As a consequence, Mr Erwood’s appeal was deemed abandoned. The Supreme Court refused Mr Erwood’s application for leave to appeal against this Court’s decision to refuse an extension of time.[12]
[11] Erwood v Maxted [2007] NZCA 161.
[12] Erwood v Maxted [2007] NZSC 38, (2007) 18 PRNZ 544.
Following this, on 9 July 2007 Mrs Maxted and the trustees filed a request that a bankruptcy notice be issued against Mr Erwood in respect of the costs awards made in their favour in the family home proceedings. These included the costs and disbursements awarded by Wild J following trial (totalling $21,026.95), those awarded by this Court (totalling $1,785.94) and those awarded by the Supreme Court (totalling $2,500). On 11 July 2007, the Registrar of the High Court at Nelson issued a bankruptcy notice for these amounts together with interest.
Before we go on to set out the course of the bankruptcy proceedings in the High Court, we should say something about Mr Erwood’s proceedings against Mrs Harley.
The fee proceedings
In the early 1990s Mr Erwood (then known as Mr McDonald) had invested approximately $185,000 through Renshaw Edwards. When the firm collapsed it became apparent that his accumulated funds had been stolen. Mr Erwood obtained judgment against the firm’s partners but they were bankrupt and could pay him nothing. Having obtained almost $40,000 under the Solicitors’ Fidelity Guarantee Fund, Mr Erwood brought proceedings against FAI, Renshaw Edwards’ professional indemnity insurer, under s 9 of the Law Reform Act 1936 and against the New Zealand Law Society as the administrator of the guarantee fund for the remainder. Mrs Harley acted as his counsel in the proceedings, instructed by the Nelson firm of Glasgow Harley.
Prior to trial, the Law Society offered Mr Erwood $450,000 by way of settlement, on a Calderbank basis.[13] That offer was declined. At trial Mr Erwood’s claim against FAI was dismissed, with an order for costs against him of $115,606.46.[14] His claim against the Law Society succeeded, but only to the tune of $212,843.67 plus interest. Because that was well below what the Law Society had offered, Mr Erwood was ordered to pay the Society costs of $30,000.[15] Mr Erwood’s own legal costs amounted to $260,570.18. In the result, then, he was badly out of pocket.[16]
[13] Calderbank v Calderbank [1976] Fam 93 (CA).
[14]McDonald v FAI (NZ) General Insurance Co Ltd HC Auckland CP507/96, 11 December 1997 and 19 February 1998 (costs).
[15] Ibid.
[16]The sum that the Law Society was ordered to pay Mr Erwood by way of interest was increased on appeal – see McDonald v New Zealand Law Society CA33/98 7 December 1999.
This was somewhat mitigated by the fact that the trial Judge ordered Mr Erwood’s legal advisers to pay personally some $65,000 of the costs awarded against Mr Erwood in favour of FAI.[17] That award was upheld in this Court[18] but overturned on appeal to the Privy Council.[19] The trial Judge also referred Mrs Harley’s fee note to the Wellington District Law Society for a costs revision.
[17] McDonald v FAI (NZ) General Insurance Co Ltd [1999] 1 NZLR 583 (HC).
[18] Harley v McDonald [1999] 3 NZLR 545 (CA).
[19] Harley v McDonald [2002] 1 NZLR 1 (PC).
Glasgow Harley issued proceedings to recover their fees (including those owed to Mrs Harley) and sought summary judgment. Despite Mr Erwood’s opposition, Master Venning awarded summary judgment, not having been advised that the fees were the subject of a cost revision.[20] (It appears that Master Venning appointed counsel assisting, Mr Banbrook, and a litigation guardian, Mr Graeme Minchin, at least in relation to the issue of quantum.) Mr Erwood applied to have the judgment set aside. Gallen J upheld the grant of summary judgment as to liability, but not as to quantum in light of the fact that the costs review had not yet occurred.[21] This Court upheld that decision.[22]
[20] Glasgow Harley v Erwood HC Nelson CP22/98, 2 March 1999.
[21] Glasgow Harley v Erwood HC Nelson CP22/98, 28 July 1999.
[22] See Erwood v Glasgow Harley [2002] 1 NZLR 251 (CA).
The costs revision was dealt with by the Wellington District Law Society’s Costs Revision Committee. The Committee fixed a base fee of $192,000 for Mrs Harley and reduced it by some $85,000 to reflect its view that Mrs Harley had not dealt with the Law Society’s settlement offer appropriately. Both Mr Erwood and Mrs Harley appealed this decision to the Registrar of the High Court, who increased Mrs Harley’s base fee from $192,000 to $222,000 before applying the $85,000 deduction. Mr Erwood then sought a judicial review of the Registrar’s decision, which was unsuccessful.[23] Costs of $72,646.22 were awarded against Mr Erwood in favour of Mrs Harley in that proceeding.
[23] Erwood v Harley HC Wellington AP120/00, 12 March 2002.
On 20 May 2002 Mr Erwood issued proceedings against Glasgow Harley and Mrs Harley alleging negligence and seeking $440,000, together with costs and an award of exemplary damages. His counsel in the proceedings was Mr Banbrook, instructed by his solicitor on the record, Mr Holmes. On 21 May 2002 Harrison J appointed Mr Michin as litigation guardian for Mr Erwood in these proceedings. This was as a result of an application made by Mr Erwood, supported by an opinion from Mr Erwood’s psychiatrist. Subsequently, Mr Erwood sought to have Mr Minchin’s appointment terminated. In part this was the result of the coming into effect of new rules governing the appointment of litigation guardians and in part it was on the basis of a report from another psychiatrist which indicated that Mr Erwood was capable of conducting litigation.
There were negotiations between counsel for Mrs Harley, counsel for Glasgow Harley and Mr Minchin. A settlement conference was held before Frater J on 25 November 2003 and a settlement was agreed. This is reflected in a consent order sealed on 27 November 2003. It purported to cover the outstanding costs matters as well as Mr Erwood’s proceedings against his former legal advisers. Mr Erwood subsequently endeavoured to have the consent orders set aside[24] and there was a dispute as to their scope, which was ultimately resolved in Mr Erwood’s favour.[25] Mr Minchin’s appointment as litigation guardian was terminated in February 2004.
[24]See Erwood v Glasgow Harley HC Auckland CIV-2002-404-1663, 15 December 2005 and the discussion in Erwood v Glasgow Harley [2008] NZCA 572.
[25]See Erwood v Official Assignee HC Wellington CIV-2008-442-449, 9 April 2009; Official Assignee v Erwood [2010] NZCA 362 (leave refused in Harley v Erwood [2010] NZSC 138).
Then in November 2004, Mr Erwood issued proceedings against Mr Holmes. According to Associate Judge Faire,[26] the essence of Mr Erwood’s claim was that:
(a)The lawyers who represented Mr Erwood’s interests at the settlement conference on 25 November 2003 did so knowing that there was medical evidence available which justified the discharge of Mr Minchin as litigation guardian, with the result that Mr Erwood could have attended the conference in person rather than through the litigation guardian.
(b)Mr Erwood did not consent to the settlement and, in any event, it was not a proper settlement.
(c)Accordingly, Mr Erwood wished to seek the recall of the consent order.
Mr Holmes’ position was that he acted at all times on the instructions of Mr Minchin.
[26] Erwood v Holmes HC Auckland CIV-2004-404-7211, 25 August 2005.
Mr Erwood sought to have a lawyer who had received a grant of legal aid to act for him in challenging the settlement appointed as counsel assisting in this proceeding but Associate Judge Faire declined his application.[27]
The course of the bankruptcy proceedings
[27] Erwood v Holmes HC Auckland CIV-2004-404-7211, 10 October 2005.
Against this (necessarily abbreviated) background, we turn to the bankruptcy proceedings. As we have said, on 9 July 2007 Mrs Maxted and the trustees applied to the High Court at Nelson for the issue of a bankruptcy notice against Mr Erwood in respect of the costs orders in the family home proceedings and subsequent appeals. In the application Mr Erwood was described as being “of no fixed abode, of Nelson and elsewhere”. The notice was issued on 11 July 2007.
On 8 August 2007 Mr Erwood applied to set the notice aside. He did so on five grounds:
(a)the bankruptcy notice was founded upon three judgment debts rather than one;
(b)he resided in Wellington, so that the bankruptcy proceedings were wrongly commenced in Nelson;
(c)Mrs Maxted had said that she would not pursue any claim against him;
(d)he had counter-claims against Mrs Maxted; and
(e)as he was under a disability, he required a litigation guardian.
In support of his application, Mr Erwood filed a short affirmation in which he alleged that he had a counter-claim, namely the right to buy the family home at half of the Government valuation if it was ever placed on the market. He also mentioned his mental health issues. Mr Erwood later filed a further affirmation saying that he had been living in Wellington for about a year and that his sister, Mrs Maxted, knew this. In addition, Mr Erwood provided a copy of a letter from Atareira, a mental health support facility. It was dated 25 August 2007 and read:
I wish to advise that we are under Schizophrenia Fellowship NZ, and have recently become ATAREIRA.
I confirm that Robert Erwood has resided in our mental health facility going on six months.
Then, on 25 September 2007, Mr Erwood filed an application for the appointment of a litigation guardian. In support of this, he filed a letter dated 1 June 2007 from Dr Grigor, a consultant psychiatrist at Capital Coast Health, to the Registrar of the Court of Appeal. That letter recorded that Mr Erwood had been a patient of District Health Boards in Auckland, Christchurch, Nelson and Wellington over many years. It noted that Mr Erwood had a letter from his treating psychiatrist in Auckland which said that Mr Erwood was incapable of instructing counsel and would need a litigation guardian in any matter. Dr Grigor then said that his letter “supports [the psychiatrist’s] assertion of five years ago and confirms that in clinical view that a litigation guardian would still be required”. It concluded by noting that it was “an interim communication” and that a more extensive report could be prepared if that was requested.
Following oral argument on 27 September 2007, Associate Judge Christiansen rejected Mr Erwood’s application to have the bankruptcy notice set aside and dismissed Mr Erwood’s application for the appointment of a litigation guardian.[28] He extended the time for compliance with the bankruptcy notice to 25 October 2007.
[28]Maxted v Erwood HC Nelson CIV-2007-442-0331, 27 September 2007.
Mr Erwood immediately brought the present appeal against the issue of the bankruptcy notice. He applied to the Court of Appeal for a stay. William Young P refused that application. On 2 November 2007, Mrs Maxted and the trustees filed a bankruptcy petition relying only on the costs order made by Wild J, thus attempting to meet one of the objections raised by Mr Erwood to the bankruptcy notice. Mr Erwood then filed an application for a change of venue to Wellington so that he could instruct a lawyer. By judgment dated 22 November 2007, Associate Judge Christiansen rejected this application and adjudicated Mr Erwood bankrupt.[29]
[29] Maxted v Erwood HC Nelson CIV-2007-442-0331, 22 November 2007 [Adjudication judgment].
Mr Erwood then brought the adjudication appeal. On 13 December 2007 this Court made an order staying public advertising and the calling of a creditors meeting following the adjudication pending the hearing, abandonment or striking out of the appeal.[30] Then, the Supreme Court has held, Mr Erwood abandoned the adjudication appeal on 17 December 2007.[31] In the document filed on that date, Mr Erwood’s primary application was to have the adjudication appeal amalgamated with the bankruptcy appeal so that there was only one appeal. If that application was not granted, he gave notice that he would withdraw the adjudication appeal and pursue only the bankruptcy notice appeal. Later, on 30 January 2008, he applied for a waiver from the requirement to pay security for costs in the adjudication appeal and, on 20 March 2008, filed a memorandum complaining that the Court had not addressed his request to combine the appeals into one. Despite these later applications, the argument was made to the Supreme Court that Mr Erwood had intended to abandon the adjudication appeal on 17 December 2007 and, there being no challenge to that contention, it was accepted by the Supreme Court.
[30] Erwood v Maxted [2007] NZCA 572.
[31] Erwood v Maxted [2011] NZSC 23 at [7].
At the same time as he filed the adjudication appeal, Mr Erwood applied to the High Court for the annulment of his adjudication. The application was not opposed by the Official Assignee, provided that certain conditions were met. Associate Judge Christiansen made the following order:[32]
[17] The application for annulment is granted, subject to the following terms:
(a)Payment of the sum of $215,576.28 to the two creditors who have filed proofs of debt in Mr Erwood’s bankruptcy.
(b)The payment of the petitioning creditor’s costs and disbursements of $4,200.
(c)Payment of the Official Assignee’s costs and disbursements in the sum of $1,500.
(d)The order for annulment shall not be sealed until the Court has received confirmation that the aforesaid payments, costs and disbursements have been paid.
[32] Maxted v Erwood HC Nelson CIV-2007-442-331, 21 February 2008.
Mr Erwood then filed an appeal against that decision. However, the appeal was ultimately abandoned as Mr Erwood took no steps to prosecute it.[33] There is a question as to the effect of Associate Judge Christiansen’s order as it may be that the conditions have now been fulfilled.
Basis of appeal
[33] See Erwood v Maxted [2009] NZCA 19 at [7].
Mr McKenzie advanced three principal grounds of appeal. He submitted that Associate Judge Christiansen erred in:
(a)Holding that the place for filing the bankruptcy proceedings was Nelson. It should have been Wellington.
(b)Declining to appoint a litigation guardian or counsel assisting.
(c)Allowing a bankruptcy notice against a debtor known to be solvent.
In respect of the last ground, Mr McKenzie sought leave to amend the notice of appeal. Although this ground had not been identified in Mr Erwood’s application to set aside the bankruptcy notice, it was a matter which he had raised before Associate Judge Christiansen, as is recorded in the Associate Judge’s adjudication judgment.[34] In these circumstances, and given the absence of any indication of prejudice, we consider that leave should be granted.
[34] Adjudication judgment at [18].
Mr McKenzie submitted that the errors were of such significance that they were incapable of remedy though s 11 of the Insolvency Act 1967 (the 1967 Act). That section provided:
Proceedings not annulled by defects
Proceedings under this Act shall not be annulled or set aside by reason of any defect, misnomer, or inaccurate description, or of the omission, of anything required to be done in or concerning any such proceedings in any case where no person is injuriously affected thereby; and any Court having jurisdiction may, in any case where any such error or omission is made, direct the same to be rectified, and may order the proceedings to be continued upon such terms as it thinks best in the interests of all concerned.
Mr McKenzie argued that the order of adjudication should be set aside and the Court should exercise its discretion to make remedial orders under s 9(5) of the 1967 Act or alternatively grant an annulment under s 119(1)(a), which would bring s 120 into play.
Mr Erwood raised three further grounds, namely that:
(a)The notice related to three debts rather than one and so was invalid.
(b)He had two counter-claims against Mrs Maxted. One alleged that she had sold the house before giving him the opportunity to purchase it “at half the Government Valuation”, as promised by his brother, Edward. The other alleged that Mrs Maxted had removed his property from the house and not returned it to him. He alleged that the property had a value of around $60,000.
(c)The Associate Judge failed to consider his application to strike out the bankruptcy proceeding.
In written submissions Mr Carruthers QC[35] for the trustees argued that:
(a)The trustees filed their bankruptcy notice in the High Court at Nelson on the basis that they could not ascertain Mr Erwood’s place of residence, consistently with the High Court Rules (the Rules).[36] In addition, Mr Carruthers noted that in various applications filed in the High Court in Wellington in July and August 2007, Mr Erwood used a Nelson address, as did a judgment issued in respect of one of those applications.[37]
(b)The Associate Judge was right to hold that Mr Erwood was not an “incapacitated person” in terms of the Rules.[38]
(c)Mr Erwood did not oppose the issue of the bankruptcy notice on the ground that he was solvent. In any event, that was a matter that should have been raised at the adjudication hearing, which is not now the subject of an appeal.
(d)The bankruptcy notice was not invalid because it referred to more than one debt. The notice was amended to refer only to one debt prior to adjudication, namely that arising from the judgment of the High Court, and it was the amended notice that formed the basis for the adjudication. The adjudication appeal has now been abandoned.
(e)As to the counter-claim, that could only be relevant to the adjudication, not to the issue of the bankruptcy notice. The adjudication is not under appeal.
(f)To the extent that there was any non-compliance in relation to the bankruptcy notice, it was saved by s 11 of the 1967 Act.
[35]Mr Carruthers did not appear at the hearing, but filed submissions on behalf of the first respondents after the appeal, in accordance with the leave granted.
[36]See High Court Rules, r 831(c) (now revoked and replaced by r 24.13 – see Judicature (High Court Rules) Amendment Act 2008, s 8(1)).
[37] Erwood v Harley HC Wellington CIV-2000-485-27, 7 August 2007.
[38] High Court Rules, r 82 (now r 4.29).
The position of the Official Assignee on the appeal was that she abided the decision of the Court. Her submissions were directed towards the position should the appeal succeed.
Analysis
We make two preliminary points:
(a)As we have said, the Supreme Court accepted, without opposition, that Mr Erwood had abandoned the adjudication appeal on 17 December 2007. As a consequence, we face some difficulty in addressing the appeal. The reason for this is that what Mr Erwood really seeks to challenge in the present appeal is the adjudication rather than the notice. That is also the effect of Mr McKenzie’s submissions, as is reflected in his application for leave to amend the grounds of appeal. While some of the grounds of appeal go to the validity of the notice, the principal ones go to the process following the issue of the notice leading to the adjudication. For example, the complaint about the Associate Judge’s refusal to appoint a litigation guardian or counsel assisting does not affect the validity of the notice. It may, however, go to whether the adjudication should have been made.
(b)The bankruptcy notice was issued on 11 July 2007. As the Insolvency Act 2006 did not come into force until 3 December 2007,[39] the 1967 Act applied. Section 19(1)(d) of the 1967 Act provided that a debtor committed an act of bankruptcy where he or she did not satisfy a bankruptcy notice served on him or her by a creditor who had obtained a final judgment for any amount (subject to possible counter-claims, set-offs and such like). Section 20 provided, among other things, that a bankruptcy notice had to be in the prescribed form. The relevant forms were forms 89 (request for issue of bankruptcy notice) and 90 (bankruptcy notice) in Schedule 1 to the Rules (now forms B1 and B2).
[39] See Insolvency Act 2006 Commencement Order 2007, cl 2.
We will deal first with the three grounds advanced by Mr McKenzie and then with the three additional grounds raised by Mr Erwood. We begin with the submission that the request for the issue of the bankruptcy notice was invalid because it was filed in the High Court at Nelson, rather than in the High Court at Wellington where Mr Erwood says he lived at the time.
Was the bankruptcy notice issued out of the wrong registry?
At the time the bankruptcy proceedings were instituted, r 831 of the Rules relevantly provided:
A bankruptcy petition must be filed –
(a)If the debtor is resident in New Zealand, in the office of the High Court nearest by the most practicable route to the place in which the debtor has resided or carried on business for the longest period during the 6 months immediately before the time when the petition is filed:
...
(c)If the debtor is absent from New Zealand or the petitioning creditor cannot ascertain the debtor’s place of residence, in the office of the High Court nearest by the most practicable route to the place in which the petitioning creditor resides or carries on business:
...
Mr Erwood says r 831(a) is the relevant paragraph. By contrast, the trustees say they relied on r 831(c). They say that they did not know where Mr Erwood lived. They point out that he described himself as being “of Nelson” in various court documents which he filed around this time and the address for service which he gave in Wellington was the address of a Post Office.
In considering this argument, Associate Judge Christiansen noted Mr Erwood’s assertion that he had been living in Wellington for more than a year. The Associate Judge went on to say, however, that the evidence indicated that Mr Erwood had lived for various periods in Nelson, Wellington and Auckland. He had had described himself as being of no fixed abode in proceedings which he commenced in the High Court at Nelson. The address for service he gave was the address of a Post Office in Wellington. The Associate Judge considered that the Nelson Court was, in the circumstances, the most convenient court to deal with the issues raised by the bankruptcy notice. The Associate Judge did not explain why this was so, but presumably it reflected the fact that the family home proceedings had been issued and heard in Nelson and the bankruptcy proceedings arose from them.
We accept that there was material before Associate Judge Christiansen indicating that Mr Erwood had been living in Wellington during the first half of 2007, namely Mr Erwood’s affirmation to that effect and the letter from Atareira.[40] On the other hand, as Wild J noted in his judgment in the family home proceedings, Mr Erwood regarded the family home in Nelson as his home, despite his frequent and sometimes lengthy absences from it.[41] Although unsuccessful before Wild J, Mr Erwood continued to pursue his claim to an interest in the family home through the appeal process, which suggests that he continued to regard the Nelson area as his place of domicile. Associate Judge Christiansen was presumably aware of this from his involvement in Mr Erwood’s litigation, although he would also have known that Mr Erwood was no longer welcome at the family home.
[40] See [27] above.
[41]Erwood v Maxted HC Nelson CIV-2003-442-363, 26 May 2006 at [45].
In terms of the issue of the notice, however, the more important consideration is what the trustees understood to be the position. The papers reveal that they did not know where Mr Erwood lived. Their request for the issue of a bankruptcy notice said that Mr Erwood “has for the greater part of the past six months resided in various places round New Zealand and in Nelson within the district of this Court”. Mr Erwood is described as being “of no fixed abode, of Nelson and elsewhere”. Clearly, then, the trustees considered that r 831(c) applied. Given the way that Mr Erwood conducted himself at the time, both generally and in the context of legal proceedings, that view is understandable. From time to time Mr Erwood had used aliases, he was involved in litigation in Auckland, Wellington and Nelson and when acting for himself, he gave a post office or other facility as his address for service. He was not forthcoming about precisely where he had been living. In applications filed in the High Court at Wellington in other proceedings involving Mrs Harley over the relevant period, Mr Erwood identified himself as being “of Nelson” but gave the address of a Wellington Post Office as an address for service.
Accordingly, we consider that Mrs Maxted and the trustees were entitled to file their application for the issue of a bankruptcy notice in Nelson and that the Registrar was entitled to issue the notice. We consider that the real issue is not the validity of the notice but the refusal of the Associate Judge to transfer the matter to Wellington on Mr Erwood’s application. By that point, Mr Erwood had disclosed where he had been living and claimed that he had suffered prejudice because he was unable to obtain the legal assistance he desired in Nelson but could do so in Wellington. This Court expressed some concern about this aspect in an earlier judgment.[42]
[42] Erwood v Maxted [2007] NZCA 572 at [22]–[32].
As we said earlier,[43] Associate Judge Christiansen considered that the Nelson Court was the most convenient Court to deal with the issues raised by the bankruptcy notice. As this Court noted in Erwood v Maxted, the Court has a discretion to transfer proceedings were it appears that the proceeding has been filed in the wrong office of the Court or that another office would be more convenient to the parties.[44] The venue for trial can also be changed where the proceedings can be more conveniently or fairly tried at another place.[45] Convenience and fairness required consideration of the interests of all concerned, not simply of Mr Erwood. One or other party to the bankruptcy proceedings had to travel. It is in this context that Mr Erwood’s claim of prejudice becomes particularly important.
[43] At [44] above.
[44] Erwood v Maxted [2007] NZCA 572 at [29].
[45] Ibid.
A difficulty with that claim, however, is that in July 2007 Mr Erwood applied to set aside a writ of sale and charging orders which Mrs Harley had obtained against him arising out of the costs revision in the fee proceedings.[46] Those enforcement proceedings were being conducted in Wellington. In that context, Mr Erwood applied to the Court for the appointment of counsel assisting. Simon France J records the basis for this application as being that Mr Erwood was willing to instruct and pay for counsel but none would act for him.[47] In other words, Mr Erwood faced the same problem in Wellington as he said he faced in Nelson, namely an inability to obtain counsel (which is, perhaps, not surprising given Mr Erwood’s history of disputes with his lawyers). Moreover, when he brought the present appeal and the adjudication appeal, Mr Erwood did not instruct counsel although both appeals were Wellington-based and filed over the relevant period. Rather, Mr Erwood acted for himself, which resulted in this Court appointing counsel to assist.
[46] See [20] above.
[47] See Erwood v Harley HC Wellington CIV-2000-485-27, 7 August 2007 at [12].
In the result, then, we do not accept that Associate Judge Christiansen was wrong not to have set aside the bankruptcy notice on the basis that it should have been issued from the Wellington rather than the Nelson Registry of the High Court.
Should a litigation guardian have been appointed?
Associate Judge Christiansen refused Mr Erwood’s application for appointment of a litigation guardian or counsel assisting for four reasons:
(a)In proceedings in the High Court, Court of Appeal and Supreme Court which were the background to the bankruptcy proceedings, Mr Erwood had not had a litigation guardian.
(b)Mr Erwood’s submissions in the matter before him indicated an aptitude for expression, thorough research and logic. Mr Erwood had identified the relevant issues, accessed relevant texts and authorities and clearly articulated his arguments.
(c)In a judgment delivered on 7 August 2007, Simon France J had refused Mr Erwood’s application for the appointment of counsel assisting.[48] The Judge said that there was no evidence before him of incapacity and Mr Erwood was well able to deal with the narrow issue that was raised in the case.[49] Associate Judge Christiansen considered that the issues in the bankruptcy proceedings were also concise and straightforward. He noted that Mr Erwood had the responsibility to meet the costs awards against him and raised matters of a technical nature which did not go to the merits.
(d)In September 2007 Mr Erwood had represented himself in respect of an application for a stay of execution in this Court in the context of an appeal against a decision of Ronald Young J.[50] The decision of this Court made no reference to the need for a litigation guardian.
[48] Erwood v Harley HC Wellington CIV-2000-485-27, 7 August 2007.
[49] At [13]–[14].
[50]Erwood v Harley [2007] NZCA 415, on appeal from Erwood v Harley HC Wellington CIV-2000-485-27, 12 September 2007.
Rule 84 of the Rules provided that an incapacitated person had to be represented by a litigation guardian unless the Court ordered otherwise. “Incapacitated person” was defined in r 82 as follows:
Incapacitated person means a person who by reason of physical, intellectual, or mental impairment, whether temporary or permanent, is–
(a)not capable of understanding the issues on which his or her decision would be required as a litigant conducting proceedings; or
(b)unable to give sufficient instructions to issue, defend, or compromise proceedings.
The material which Mr Erwood placed before Associate Judge Christiansen in support of his application did not justify a finding of incapacity. The question is whether the Associate Judge should have caused further enquiry to be made on that matter.
As this Court said in Erwood v Glasgow Harley, “[t]he question whether Mr Erwood is capable of conducting litigation is open-textured and, as this case and others have shown, there is scope for more than one view”.[51] Mr Erwood often seeks to use his mental health difficulties to obtain an advantage in litigation. As the earlier descriptions of the family home and fee proceedings amply illustrate, it has become a regular practice for Mr Erwood to represent himself but then apply to the Court for the appointment of counsel assisting or, less often, a litigation guardian.
[51] Erwood v Glasgow Harley [2008] NZCA 572 at [38(a)].
While Mr Erwood’s mental health condition may fluctuate, at the relevant time he seems to have been able to understand the issues in the various proceedings in which he was involved and to prepare and advance written and/or oral submissions. As Associate Judge Christiansen said, Mr Erwood’s submissions in the present case were focussed, researched and logical. Moreover, Mr Erwood’s liability to pay the amounts sought in the bankruptcy notice was clear. He sought to avoid or defer payment essentially by raising procedural points. At this time, Mr Erwood continued to represent himself in other matters and his application for the appointment of counsel assisting in other contemporaneous proceedings had been declined, as the Associate Judge knew. In light of these factors, we consider that the Associate Judge was entitled to proceed as he did.
A bankruptcy notice against a person known to be solvent?
Courts have observed from time to time that bankruptcy and winding up proceedings should not be used simply as a form of debt collection.[52] In this context, however, there is a difference between the issue of a bankruptcy notice and the making of an order for adjudication, the issue of solvency being more significant in relation to the latter than the former.
[52]Lawson v Perkins HC Auckland CIV-2008-404-2473, 20 November 2008 at [18]; Commissioner of Inland Revenue v Tranz Earth Ltd (2007) 23 NZTC 21,317 (HC) at [8]–[9]; Re Stirling, ex parte Ross & Co [1991] 1 NZLR 569 (HC) at 575.
It is clear that Mr Erwood committed an act of bankruptcy in terms of s 19(1)(d) of the 1967 Act. As is the case with statutory demands in respect of companies, we consider that the issue of a bankruptcy notice may be justified where a debtor unreasonably refuses to pay a debt which is plainly owed and that the debtor’s solvency is not a ground on which the bankruptcy notice must necessarily be set aside.[53] Mr Erwood’s liability to pay the court costs was clear and he did not pay them. In any event, because Mr Erwood attempted to hide his assets, it was unclear exactly what his financial position was. As it turned out, he had invested a considerable sum of money in the name of one of his aliases (which the trustees learnt of around this time).
[53]See AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389 at [4]–[10] and Gill Construction Company Ltd v Butler HC Wellington CIV-2009-406-203, 2 November 2009 at [12]–[16].
Accordingly, the real issue in relation to solvency is whether the Associate Judge should have adjudicated Mr Erwood bankrupt rather than whether he erred in failing to set aside the bankruptcy notice. In that connection, we note that Associate Judge Christiansen gave Mr Erwood plenty of time to make payment. In any event, as the adjudication appeal has been abandoned, that is not an issue that we are able to address further.
Other points raised by Mr Erwood
Mr Erwood raised three further points. The first was that the bankruptcy notice related to three debts rather than one and was therefore invalid. Mr Erwood relied on Re Mills.[54] In that case, the applicant had been adjudicated bankrupt on the basis of a bankruptcy notice that was founded on three judgment debts. Stout CJ ordered that the adjudication be set aside, on the ground that the bankruptcy notice was bad because it was based on three judgment debts. The Chief Justice explained that such a notice was invalid as it deprived the debtor of the ability to satisfy or challenge one of the debts so that it could not form the basis of a bankruptcy petition.
[54] Re Mills (1913) 32 NZLR 801 (SC).
We do not see Mills as being of assistance in the present case. The three debts which were referred to in the bankruptcy notice were all costs orders in the same litigation and, in any event, the bankruptcy petition (and the adjudication) was based on only one costs order. Given the nature of the debts, we do not consider that the Associate Judge erred in declining to set aside the bankruptcy notice because it related to three debts.
The second point was that Mr Erwood alleged he had two counterclaims. One related to property that he said Mrs Maxted removed from the property before it was sold. He claimed that it had a value of around $60,000. However, as this Court has previously observed, it is only necessary to consider the values ascribed to these various items of property to appreciate that the claim, if there is one, is very much over-stated.[55] Perhaps for that reason, Mr Erwood did not really press this claim before us.
[55] Erwood v Maxted [2007] NZCA 572 at [19].
The more significant claim relates to an undertaking that Mr Erwood says he was given by his brother, to the effect that he could buy the Nelson property at half the Government Valuation if it was ever to be sold. This undertaking, he says, is binding on the trustees. He produced a letter dated 10 April 1993 from his brother Edward and addressed to him. The letter began:
I THOUGHT I HAD SET OUT EVERYTHING IN THE AGREEMENT OF THE 6TH APRIL. I WILL TRY AND CLARIFY THE MATTERS YOU HAVE RAISED WITH ME.
It went on:
THE AGREEMENT BETWEEN MYSELF, EDWARD ERWOOD, AND MY MOTHER LUCY MAY ERWOOD WAS THAT IT WAS A CONDITION OF THE PROPERTY AT 190, WAIMEA ROAD, THAT ON BEING TRANSFERRED TO MYSELF, EDWARD ERWOOD, THAT HER SONS FEDERICK AND ROBERT ERWOOD WOULD BE ABLE TO LIVE IN THE PROPERTY FOR THE REMAINDER OF THEIR LIFE. I FULLY ACCEPT THE ABOVE CONDITION IN CONSIDERATION OF THE TRANSFER OF MY MOTHER TRANSFERRING THE PROPERTY TO ME.
...
IF THE HOUSE WAS EVER SOLD BY ME OR BY BENEFICIARY UPON MY DEATH, YOU, ROBERT ERWOOD, MUST BE GIVEN FIRST OPTION TO PURCHASE THE HOUSE FOR HALF THE GOVERNMENT VALUATION AT THAT TIME. IT IS NOT INTENDED THAT YOU PAY ANYTHING LIKE THE MARKET PRICE. IT WAS MUM’S INTENTION THAT YOU ALWAYS HAVE A PLACE TO LIVE IN THIS HOUSE. I MYSELF HAVE NO INTENTION OF SELLING, BUT IF THIS CHANGED YOU WOULD BE WELL PROTECTED.
A genuine or triable counterclaim is a ground for setting aside a bankruptcy notice provided that the counterclaim equals or exceeds the amount of the judgment debt and the Court is satisfied that it could not have been raised in the proceedings giving rise to the judgment.[56] Mr Erwood says that he could not have raised this claim in the family home proceedings as he did not find the letter until 2007.
[56]See, for example, Bennett v Preston HC Palmerston North CIV-2007-454-856, 28 October 2008 at [17]–[18].
There are a number of problems with Mr Erwood’s claim. For present purposes the most significant is that in the family home proceedings Mr Erwood raised two principal contentions. First, he sought to enforce a trust that he said was declared by his mother that he and his brother Frederick could remain in the Nelson house as long as they wished. Wild J rejected that claim.[57] Second, he argued that he had been given an option to buy the family home if it was sold by Edward, or on his death. Wild J found that the trustees had given Mr Erwood an option to purchase in a letter dated 22 December 2003, but Mr Erwood did not exercise it.[58] It is not clear from the judgment whether the option provided that the price would be half the Government valuation. But even if it did not, the option which Mr Erwood now seeks to raise by way of counterclaim should have been raised in the family home proceedings. The fact that Mr Erwood misplaced the letter and only discovered it again in 2007 does not alter this. Had Mr Erwood issued proceedings based on the agreement reflected in the letter, the trustees may well have been entitled to have it struck out on the basis of the principle of res judicata.[59]
[57] Erwood v Maxted HC Nelson CIV-2003-442-363, 26 May 2006 at [69]–[79].
[58] Ibid at [80]–[81].
[59] See Bank of New Zealand v Savril Contractors Ltd [2005] 2 NZLR 475 (CA) at [42] and [109].
Accordingly, we do not accept that the bankruptcy notice should have been set aside on the ground that Mr Erwood had a counterclaim against the trustees.
The third point that Mr Erwood raised was that the Associate Judge did not deal with his application to strike out the bankruptcy proceeding. The background to this is that on 30 October 2007, Mr Erwood filed a memorandum in which he sought to have the bankruptcy proceeding struck out as an abuse of process, on the ground that the trustees knew he was solvent. It appears that the memorandum was returned to Mr Erwood on at the direction of the Associate Judge. Mr Erwood then filed an interlocutory application seeking an order striking out the bankruptcy proceeding on the ground that he was solvent. This application, Mr Erwood says, was never dealt with.
In the various proceedings in which he is involved Mr Erwood files numerous documents in the form of memoranda, applications, affirmations and exhibits. Most are hand-written, with multiple excisions and additions, and so are difficult to follow. In addition, they are generally lengthy, repetitive and discursive. Given the welter of paper that Mr Erwood is accustomed to file, it is understandable that something might be overlooked.
The basis for Mr Erwood’s strike out application was that he was solvent and the trustees knew that. As we have already said, we consider that this goes to the whether the adjudication should have been made rather than to the validity of the bankruptcy notice and the adjudication is not before us.
Accordingly, we do not accept the three further grounds raised by Mr Erwood.
Conclusion
In the result, we consider that none of the grounds of challenge to the Associate Judge’s refusal to set aside the bankruptcy notice is sustainable. It may well be that he should not have made the adjudication, but that is not an issue which is before us. Accordingly the present appeal must be dismissed. As a consequence, we do not need to consider the question primarily addressed in supplementary submissions concerning the consequences if the adjudication were to be quashed.
This leaves the issue of the conditional annulment granted by Associate Judge Christiansen. As we understand it, that is an extant order of the Court. It may be that it provides a mechanism by which this long running matter can now be resolved.
Decision
The appellant is granted leave to amend his grounds of appeal. The appeal is dismissed. The appellant must pay the first respondents costs for a standard appeal on a band A basis, together with usual disbursements.
Solicitors:
McFadden McMeeken Phillips, Nelson for First Respondents
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