Eversons International Limited (in liquidation) v Stewart

[2024] NZHC 1648

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2024-409-046 [2024] NZHC 1648

IN THE MATTER

of the Insolvency Act 2006

AND

IN THE MATTER

of the bankruptcy of Evan Kerry Stewart

BETWEEN

EVERSONS INTERNATIONAL LIMITED

(in liquidation) and ELIZABETH HELEN KEENE and LUKE NORMAN as

liquidators of Eversons International Limited Judgment Creditors

AND

EVAN KERRY STEWART

Judgment Debtor

Hearing:

18 June 2024

(supplementary submissions filed 8 July 2024 and 19 July 2024)

Appearances:

P C Murray for Judgment Creditors R A Hearn for Judgment Debtor

Judgment:

2 August 2024

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 2 August 2024 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

EVERSONS INTERNATIONAL LIMITED (in liquidation) v STEWART [2024] NZHC 1648 [2 August 2024]

[1]                 Mr Stewart applies to set aside the bankruptcy notice served upon him by the judgment creditors on the grounds that:

(a)the bankruptcy notice is defective because it is issued in respect of two judgments and the parties entitled to the benefit of those judgments are different;

(b)Mr Stewart is prejudiced by the defects in the bankruptcy notice; and

(c)the bankruptcy notice is an abuse of process as the judgments underlying it are susceptible to being varied or overturned on appeal.

[2]The judgment creditors oppose the application and argue:

(a)the bankruptcy notice is not defective;

(b)Mr Stewart has not established he is prejudiced should there be any defects in the bankruptcy notice; and

(c)the judgments underlying the bankruptcy notice are not under appeal but, in any event, the fact of an appeal does not operate as a stay of the judgments or a ground to set aside the bankruptcy notice as an abuse of process.

[3]Broadly, the issues I must determine are:

(a)Is the bankruptcy notice defective?

(b)If so, should it be set aside?

(c)Is the bankruptcy notice otherwise an abuse of the Court’s processes?

Background

[4]                 Mr Stewart is the sole shareholder and director of Eversons International Ltd (in liq) (Eversons). Eversons incurred a very substantial tax liability that it could not pay and was placed into liquidation in 2018.

[5]                 Elizabeth Keene and Luke Norman, as liquidators of the company, took civil proceedings against Mr Stewart in this Court under CIV-2020-409-192. In early August 2022, shortly ahead of a scheduled trial, the parties reached a settlement. The terms of the settlement were recorded in a deed. Relevantly for present purposes:

(a)Mr Stewart agreed to pay a settlement sum of $1 million by instalments;

(b)Mr Stewart signed an admission of claim and acknowledgement of debt in the sum of $2 million; and

(c)the liquidators undertook not to file the admission of claim unless there had been default by Mr Stewart under the settlement deed and a default notice had been served and not complied with.

[6]                 Mr Stewart paid some amounts due under the settlement deed. There were other amounts payable by Mr Stewart on 1 November 2022 and 8 November 2022 which he was not in a position to pay. The parties’ lawyers agreed by correspondence to extend the terms of payment under  the settlement  deed  in some  respects,  but Mr Stewart then defaulted. On 28 November 2022 the liquidators issued a default notice to Mr Stewart. Mr Stewart considered he remedied his default. The liquidators disagreed.   They filed the admission of  claim and  sought judgment  upon it under   r 15.16(1) of the High Court Rules 2016 (the Rules).

[7]                 Following a hearing before Nation J, judgment was entered against Mr Stewart on 22 December 2022 in the sum of $1,720,000 (being $2 million less payments made by Mr Stewart).1

[8]                 In early 2023 Mr Stewart filed an application under r 15.16(5) of the Rules to set aside the judgment entered by Nation J. In a series of mentions of his application:

(a)Mr Stewart  was directed by the  Court to pay the   next instalment of

$80,000 due under the settlement deed. Mr Stewart made a payment of

$80,000 on 20 February 2023.

(b)By minute of Mander J dated 27 February 2023, Mr Stewart was directed to provide, amongst other things, copies of the settlement statement for the sale of a property and other documents showing how the proceeds of sale of the property had been paid or disbursed. These documents were relevant to whether Mr Stewart was in default of the settlement deed. There is a dispute as to whether Mr Stewart complied with these directions.

[9]                 On 11 May 2023 Mr Stewart  commenced  a  separate  proceeding  against Ms Keene and KPMG Partners (Ms Keene’s firm) under CIV-2023-409-225, alleging fraud in the manner in which claims had been made against him in the liquidation of Eversons and seeking damages.2 Ms Keene and KPMG Partners applied to strike out the claim. Mr Stewart opposed the application.

[10]             While Mr Stewart’s application to set aside the judgment of Nation J and the application by Ms Keene and KPMG to strike out Mr Stewart’s claim were made in separate proceedings, they were heard together by Churchman J on 16 August 2023. In a judgment dated 23 August 2023, Churchman J dismissed Mr Stewart’s application under r 15.16(5) and struck out Mr Stewart’s proceeding.3

1      Eversons International Ltd (in liq) v Stewart [2022] NZHC 3616.

2      For further detail of the nature of the allegations made by Mr Stewart see Eversons International Ltd v Stewart [2023] NZHC 2325 at [27]–[28].

3      Eversons International Ltd (in liq) v Stewart, above n 2, at [41] and [65].

[11]             In a costs judgment of 1 November 2023, Churchman J awarded costs in favour of the company, the liquidators, KPMG and Ms Keene against Mr Stewart in the sum of $47,470 plus disbursements.4 The award was made in respect of both applications. This reflected the fact that the company, the liquidators, KPMG and Ms Keene were related parties, were all represented by the same counsel and their counsel submitted to Churchman J that it was not possible to separate out the work that had been undertaken between the two proceedings due to the overlap of their subject matter.

[12]In his reasons for judgment, Churchman stated as follows:

[25] The liquidators and defendants’ claims for indemnity  costs  are allowed. I make an order awarding indemnity costs against Mr Stewart in favour of the liquidators, the company and the defendants in the sum of

$47,470, plus disbursements of $1,488.73.

[13]However, the judgment sealed by the Court provided:

... Mr Stewart is to pay jointly and severally to the Liquidators, the Company and the Defendants indemnity costs in the sum of $47,470 (excluding GST) together with disbursements of $1,488.73 (excluding GST) as set out in the attached schedule.

[14]             Mr Stewart was granted an extension of time to appeal Churchman J’s refusal to set aside the judgment entered against him in CIV-2020-409-192. The Court of Appeal stated it was not in a position to comment on the merits of the appeal but did not consider it clearly hopeless.5 The appeal is scheduled for hearing on 3 October 2024.

[15]             Mr Stewart has not appealed Churchman J’s judgment striking out his claim in respect of proceeding CIV-2023-409-225. He has not appealed Churchman J’s costs judgment either.

[16]             A bankruptcy notice was served on Mr Stewart by the judgment creditors on 15 February 2024. The amount claimed in the bankruptcy notice was $1,777,360.26, calculated as follows:

4      Eversons International Ltd (in liq) v Stewart [2023] NZHC 3083.

5      Stewart v Eversons International Ltd (in liq) [2024] NZCA 104 at [55].

Judgment of Nation J dated 22 December 2022	$1,720,000.00
less payment received on 20 February 2023	80,000.00
plus interest on the judgment of Nation J, less payment of $80,000 received on 20 February 2023, under s 10 of the Interest on Money Claims Act 2016 from 22 December 2022 to 16 June 2024	88,401.53
plus judgment of Churchman J as to costs dated 1 November 2023	48,958.73
Total	$1,777,360.26

[17]             On 29 February 2024, Mr Stewart made this application to set aside the bankruptcy notice.

Is the bankruptcy notice defective?

[18]             Mr Hearn submits that bankruptcy applications are to be made by one creditor against a single debtor in respect of only one debt.6 Mr Stewart’s position is that the bankruptcy notice is defective as it:

(a)relates to two judgments;7

(b)the judgments were entered in favour of different sets of creditors; and

(c)the costs judgment created an entitlement in favour of the liquidators, the company, Ms Keene and KPMG jointly and can only be enforced by all of them.8

More than one judgment

[19]             The authority most often cited for the proposition that a bankruptcy notice may only be issued in respect of one judgment is In re Mills.9 This concerned an application

6      Relying on Lister v Lister [2018] NZHC 1743 at [11]; and Keller v Daisley [2022] NZHC 2080.

7      In re Mills, A Debtor (1913) 32 NZLR 801 (SC), citing Re Low; ex parte Argentine Gold Fields Ltd [1891] 1 QB 147 (CA).

8      I issued a minute to counsel following the hearing calling for further submission on this last issue and both parties filed supplementary submissions.

9      In re Mills, A Debtor, above n 7.

to set aside an adjudication in bankruptcy on the ground that the bankruptcy notice was bad because it was founded on three judgments. Stout CJ said:10

It is clear from the decided cases in England that such an objection as is taken in this case is fatal to the bankruptcy notice, and consequently there has been no act of bankruptcy to support the petition ... The broad reason for this rule is stated by Lord Esher, M.R, in re Low (supra), as follows: Another reason for coming to the same conclusion is that otherwise there would be taken away from the debtor a right that he undoubtedly has to satisfy one of the notices, or to raise a counterclaim, set-off, or cross-demand to it, and so prevent its being used for the presentation of a bankruptcy petition.

(footnotes omitted)

[20]             Several justifications have been advanced for the proposition that a bankruptcy notice must be issued in respect of only one judgment. The first of these is that it accords with the scheme of the Insolvency Act 2006 and the Rules.11 A further contention is that to include more than one judgment within a bankruptcy notice takes away a debtor’s right to satisfy one of the notices or to raise a counterclaim, set-off or cross-demand in respect to it. It is said the debtor should be able to choose which notice they will satisfy or raise a counterclaim, set-off or cross-demand to extinguish, and that this choice lies with the debtor and not the creditor.

[21]             In Far North District Council v Pollock Associate Judge Bell explained the matter as follows:12

[9]    There is authority that there should be a separate bankruptcy notice for each judgment debt, a decision of the English Court of Appeal, Re Low ex parte Argentine Gold Fields Ltd. Lord Esher MR gave two reasons. First, he said that on the language of the statute, the Bankruptcy Act 1883 (UK), a bankruptcy notice could only issue for a single judgment debt, not for more. Second, he said:

Another reason for coming to the same conclusion is that otherwise there would be taken away from the debtor a right that he undoubtedly has to satisfy one of the notices, or to raise a counter-claim, set-off, or cross-demand to it, and so prevent its being used for the presentation of a bankruptcy petition.

[10]   I follow that decision. As to the first reason given by Lord Esher, New Zealand’s Insolvency Act 2006 is in similar terms. Section 17(1)(a) refers to “a final judgment or a final order”, indicating a single final judgment or a

10     At 801.

11     Specifically, ss 17 and 29 of the Insolvency Act 2006 and the form of Bankruptcy Notice prescribed as Form B2 of the High Court Rules 2016.

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

single final order. Similarly, s 29(1)(b) refers to the bankruptcy notice requiring “the debtor, in relation to the judgment debt” singular, rather than “judgment debts” plural. Moreover, just as under the English Act, the scheme of the legislation anticipates that a debtor should be entitled to challenge judgment debts separately in separate bankruptcy notices. Accordingly, the bankruptcy notice in this case is irregular because of the failure to follow the statute and the decision in Re Low.

(footnotes omitted)

[22]             However, as Mr Hearn correctly recognises, the law has developed since In re Mills was decided. It is no longer the case that it will be fatal to the validity of a bankruptcy notice that it has been issued in respect of more than one judgment in the absence of some prejudice to the debtor.13 There are several examples where the Court has refused to set aside a bankruptcy notice challenged on this basis.

[23]             In Re Ebbett, ex parte Fletcher Merchants Ltd an application to set aside a bankruptcy notice was made, including on the basis that it was issued in respect of more than one judgment made in a proceeding.14 Fisher J referred to the authority of In re Mills but did not set aside the bankruptcy notice. He said:15

For present purposes the point made by Mr Winiata is that in one sense the judgment debt is divisible into two distinct Court adjudications, one being the substantive one made on 21 October 1991 and the second being the ancillary interlocutory one made on 17 February 1992. Mr Winiata points out that on the authority of In re Mills ... which in turn refers to certain old English authorities, it is a potentially fatal defect in a bankruptcy notice if it is based upon more than one judgment. It seems to me however that the authorities to which Mr Winiata referred are distinguishable upon the basis that they were concerned with judgments entered in distinct actions. I do not see how the debtor in a case such as the present one could be said to be in any way disadvantaged by having an ancillary interlocutory order for costs included in the same bankruptcy notice as the substantive judgment itself. Quite to the contrary, it would be inconvenient, and would cause unnecessary expense to all concerned including the debtor himself (see the distinct filing fees for each bankruptcy notice request) if a multiplicity of bankruptcy notices were called for in a situation such as the present one. I take the view that it is legitimate to include in one bankruptcy notice the sum paid with respect to a substantive judgment together with any ancillary interlocutory orders as to costs. That is supported by common sense and I can find nothing in the legislation or the authorities to the contrary.

13     In re Mills, above n 7.

14     Re Ebbett, ex parte Fletcher Merchants Ltd HC Tauranga B109/92, 9 October 1992.

15     At 2.

[24]             In Far North District Council v Pollock the bankruptcy notice was in respect of two costs orders made against Mr Pollock but in different proceedings.16 Associate Judge Bell considered this was an irregularity that could be cured under s 418 of the Insolvency Act as Mr Pollock was not prejudiced by the defect. He said:

[13] Mr Pollock has treated the costs orders in the bankruptcy notice as a single debt. He has not suggested that he has the right to challenge one debt and not the other. He has not attempted to make payment for one debt, rather than the other. In fact, he has made no payments at all. There was no prejudice to Mr Pollock in the two costs orders being combined in one bankruptcy notice. Accordingly, notwithstanding the defect, I allow the proceeding to continue.

[25]             In Body Corporate 341188 v Kelly Associate Judge Bell again refused to set aside a bankruptcy notice issued in respect to two judgments in related proceedings before different courts due to the absence of any prejudice to the debtor.17

[26]Associate Judge Bell’s decision was upheld on review by Lang J who said:18

[7]                  ... Recent New Zealand authority, however, is to the effect that, particularly where both judgment debts arise out of the same proceeding, there is no impediment to a judgment creditor including two judgment debts within a single bankruptcy notice unless that will cause demonstrable prejudice to the debtor.

[8]                  The Associate Judge held that the starting point is that a bankruptcy notice should be based on a single judgment debt. However, where the debtor is not embarrassed because of the inclusion of two judgment debts, the debtor will not be prejudiced. In such cases the Court may exercise its discretion not to declare the bankruptcy notice invalid.

(footnotes omitted)

[27]              Before Lang J the debtor argued that Associate Judge Bell had failed to recognise that Mr Kelly had suffered significant prejudice by the inclusion of two debts within the bankruptcy notice because he was not able to satisfy one of the judgment debts but challenge the other. Lang J rejected this argument saying:

[10] I do not see how  Mr Kelly can be prejudiced by the inclusion of the  two judgment debts in the bankruptcy notice. First, it was open to Mr Kelly to pay the debt owing in respect of the undisputed award of costs within the 14 day period stipulated in the bankruptcy notice. He could then have opposed

16     Far North District Council v Pollock, above n 12.

17     Body Corporate 341188 v Kelly [2016] NZHC 2230 at [30].

18     Body Corporate 341188 v Kelly [2017] NZHC 94.

the making of an order of adjudication based on the other debt. Furthermore, in the event that Mr Kelly paid the costs awarded by Venning J outside the period required by the bankruptcy notice I consider it unlikely that the Court would make an order of adjudication based solely on the basis that he failed to pay the debt within that period.

[28]             Creser v Creser concerned an application to annul an adjudication in bankruptcy on grounds including that the bankruptcy notice was defective because it referred to two separate judgments.19 Associate Judge Smith doubted whether the principle that a bankruptcy notice must be based on only one judgment exists in New Zealand,20 but did not need to consider the matter because of the absence of any prejudice to the debtor. He said:

[55] The point is technical and lacking in any substantive merit — no basis has been put forward on which I could conclude that Mr Creser’s rights were somehow prejudiced. There is no suggestion that he might have paid the High Court costs order but not the order made by the Court of Appeal (or vice versa), or that he had some cross-claim or demand that might have been set off against either order. To the extent that I might be wrong in my view that the bankruptcy notice was not defective on the “two judgments” basis, the defect would not in my view justify the making of the annulment order which Mr Creser seeks.

[29]             Monschau v Bamber concerned an application to set aside a bankruptcy notice issued in respect of four judgments made in the Māori Land Court and Māori Appellate Court.21 Associate Judge Bell regarded the inclusion of more than one judgment in the bankruptcy notice as an irregularity but did not set it aside when the judgments were all based on the same litigation and the debtor had a common response to all of the debts. Notably the Associate Judge said:

[30]              The reason for requiring a bankruptcy notice to be confined to one judgment debt is to allow the debtor the opportunity to address different debts separately (for example to pay one debt while challenging the other). In this case however that rationale does not apply. Mr Bamber has a common response to all the debts, and that is his counterclaim against the trustees requiring them to pay him for his work in clearing the land and bringing it up to production. He claims $300,000; he has pitched that figure at a sum higher than the amounts claimed in the bankruptcy notice.

19     Creser v Creser [2014] NZHC 3267 at [53].

20 At [54].

21     Monschau v Bamber [2018] NZHC 2566.

[30]   There is also Court of Appeal authority on the matter. In Erwood v Maxted the Court held that a bankruptcy notice was not invalid because it was based on three judgments, albeit all in the one proceeding.22 The Court said:

[59]   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. 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.

[60]   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.

(footnotes omitted)

[31]   In Haines v Memelink a bankruptcy notice was set aside on other grounds, but in relation to the inclusion of more than one judgment in the bankruptcy notice the Court of Appeal said:23

[18] There has been a long-standing rule that the inclusion of multiple judgment debts in one bankruptcy notice is impermissible as it would prevent a debtor separately challenging each judgment debt, or paying one and challenging the other. There are exceptions, for example where the debtor has a common response to all the debts or the nature of the debts is the same. The appropriate scope of the rule might well be revisited, but we did not hear argument about it, and it is best left for an occasion when there is argument on this point.

(emphasis added)

[32]   For my part, I am not persuaded that as a matter of statutory interpretation bankruptcy notices should only be issued in respect of a single judgment. However, it is not necessary for me to address that issue further. Based on the authorities to which I have referred, if the inclusion of more than one judgment in a bankruptcy notice is considered irregular that alone will not be sufficient to invalidate it in the absence of some prejudice to the debtor.

22     Erwood v Maxted [2012] NZCA 110.

23     Haines v Memelink [2022] NZCA 82, [2022] NZCCLR 3.

[33]In this respect s 418 of the Insolvency Act provides:

Defects in proceedings

(1)A proceeding under this Act must not be invalidated or set aside for a defect (which includes misdescription, misnomer, or omission) in a step that must be taken as part of, or in connection with, the proceeding, unless a person is prejudiced by the defect.

(2)The court may order the defect to be corrected, and may order the proceeding to continue, on the conditions that the court thinks appropriate in the interests of everyone who has an interest in the proceeding.

[34]   In Best v Watson the Court of Appeal considered the application of what was then s 11 of the Insolvency Act 1967.24 That provision was in materially similar terms to what is now s 418. The Court of Appeal held that s 11 had to be given “its full meaning and is not to be read subject to any limitations not required by the statutory language”.25 The Court went on to say:26

We think that the same considerations apply under s 11. That provision may be invoked in any case where the proceedings are defective and however the defect may be characterised. It will always be a question of degree whether or not it can be said that, notwithstanding failure to comply with an apparently mandatory requirement of the Act or of the Rules, there is before the Court what can fairly be described as a proceeding under the Act; and that question should not be approached in a mechanical or technical way.

[35]   Here, it is understandable that the two judgments were included in the one bankruptcy notice. Both judgments were in favour of the judgment creditors and obtained in the one proceeding (CIV-2020-409-192). While the costs judgment was also made in respect to another proceeding, the subject matter and the parties of both proceedings were closely related to the extent Churchman J considered Mr Stewart’s claim against KPMG and Ms Keene was a collateral attack upon the judgment of Nation J.27

[36]   Mr Stewart is not prejudiced by the inclusion of two judgments in the bankruptcy notice.   Mr Stewart does not identify any such prejudice in  his affidavit.

24     Best v Watson [1979] 2 NZLR 492 (CA). In Far North District Council v Pollock, above n 12, at

[12] Associate Judge Bell regarded s 418 to be to the same effect as s 11 and Best v Watson as authoritative guidance on how s 418 is to be applied.

25     At 494.

26     At 494.

27     Eversons International Ltd v Stewart, above n 2, at [54].

Mr Hearn submits that Mr Stewart could have been misled as to his options in responding to the bankruptcy notice. However, there is no suggestion he was in fact misled and I do not see any basis for that submission. I note that the judgment debts are separately identified so Mr Stewart could address each debt separately, but it is plain he has no wish to do so because he has a common response to both judgments.

[37]   As was noted by the Court of Appeal in Haines v Memelink, one of the exceptions to the principle that the inclusion of multiple judgment debts in one bankruptcy notice is impermissible is where the debtor has a common response to all the debts.28 That is the  case  here.  I do not accept  Mr Hearn’s submission that as  Mr Stewart has appealed only from the dismissal of his application under r 15.16(5), he does not have a common response to all the debts in the bankruptcy notice. What this does not recognise is that Mr Stewart’s position is that he is not liable for either debt, and that both are susceptible to be varied or set aside entirely if he is successful on his appeal.

[38]   I therefore do not accept that the bankruptcy notice should be set aside because it was issued in respect of more than one judgment.

Different sets of creditors

[39]   The next matter advanced for Mr Stewart is that the bankruptcy notice is defective because it is impermissible to issue a bankruptcy notice in respect of judgment debts owed to different sets of creditors.

[40]   The sealed costs judgment did not accurately reflect Churchman J’s reasons for judgment, to the extent that it stated Mr Stewart was to pay “jointly and severally the Liquidators the Company and the Defendants”. Churchman J does not say that in his reasons and there is no express provision in the Rules as to whether a costs award made in favour of multiple parties is made jointly, severally or jointly and severally.

[41]   Mr Hearn submits that the costs judgment is a chose in action jointly owned by the liquidators, the company, Ms Keene and KPMG and joint obligations must be

28     Haines v Memelink, above n 23, at [18].

jointly enforced.29 While he accepts there are cases where it has been held that the inclusion of multiple judgments in a bankruptcy notice is a defect capable of remedy under s 418, those cases did not concern judgments in favour of different sets of creditors, some of which were not before the Court. He submits that this is a defect incapable of remedy under s 418 as the only way to address it is to require separate bankruptcy notices to be issued.

[42]   Mr Murray argues, by analogy with r 14.14 (which provides that the liability of two or more persons ordered to pay costs will be joint and several unless the Court directs otherwise) or as a matter of construction of the costs judgment, that the costs award is joint and several and can be enforced by any of the parties entitled to the benefit of it. He further submits that even if the Court were of the view that the costs judgment should not have been included in the bankruptcy notice, that is not a defect that is either so substantial or prejudicial to Mr Stewart that it should be set aside.

[43]   Although I called for further submissions from counsel in relation to this issue, upon reflection I do not think the result of this application depends upon whether   Mr Stewart’s obligation under the costs judgment is regarded as having been owed to the judgment creditors and to Ms Keene and KPMG jointly (as Mr Stewart contends) or jointly and severally (as the judgment creditors contend).

[44]   The principle upon which Mr Stewart relies, that joint obligations must be enforced jointly, concerns the circumstance where a party commences an action to enforce an obligation to which some other person is jointly entitled. The procedural requirement that all persons entitled to the benefit of the obligation should be parties to the action, either as a plaintiff or defendant, ensures all issues between those with an interest in the subject matter are determined in the one proceeding.

[45]   The authorities upon which Mr Hearn relies to support his submission do not concern the situation after judgment is obtained when the issues between the interested persons have been finally determined. Mr Stewart’s contention that the same principle applies both before judgment and to enforcement proceedings after judgment is

29     Johnston v Johnston [1991] 2 NZLR 608 at 613.

obtained was not supported by any authority, nor could I find any such authority in my own research.

[46]   A requirement that a creditor who has obtained a judgment jointly with another may only enforce the judgment jointly raises practical issues that may hinder recovery. Although in a different context, this is illustrated by Khan v Fleming where it was unsuccessfully argued that a bankruptcy proceeding based on a debt owed to a family trust must be brought not just by the trustees but also by the beneficiaries.30 The Court of Appeal noted that such a requirement was surprising in terms of practicality, because a family trust may have many beneficiaries and because “[s]ome may be difficult to contact. Some may refuse to participate. Some may indeed have interests which coincide with the debtor’s …”.31

[47]   While Mr Hearn points out that before judgment a party not wishing to enforce a joint obligation may be made a defendant to a proceeding, such an approach is not possible in bankruptcy proceedings. As Associate Judge Osborne noted in Lister v Lister, there is no legal basis by which a creditor may be joined to another’s bankruptcy notice.32

[48]   Further, a requirement that the judgment must be enforced by all entitled parties jointly is not required to protect Mr Stewart, as payment by him of the judgment sum to any of the parties entitled under it would operate as payment to them all.33

[49]   Mr Hearn referred me to Keller v Daisley, which concerned an application to set aside three bankruptcy notices in respect of three judgments issued in different proceedings.34 Two of the judgments were obtained in favour of parties Ark and Keller. Daisley advanced an argument that two bankruptcy notices issued by Ark and Keller were defective because, as separate and distinct legal personalities, they should have each issued separate bankruptcy notices in respect to each judgment. That

30     Khan v Fleming [1999] 3 NZLR 268 at [6].

31 At [6].

32     Lister v Lister, above n 6, at [9]–[14].

33     Douglas v Patrick 100 ER 802 (KB).

34     Keller v Daisley, above n 6.

submission  was  rejected  by  Associate Judge  Gardiner.    Mr Hearn relies on the judgment because the Judge said:

[20] I do not accept that the bankruptcy notices are defective. The two judgments in question ordered Mr Daisley to pay costs to Ark and the Kellers jointly. Therefore, for the purposes of bankruptcy notices to enforce those orders, Ark and the Kellers are a single creditor.

[50]   I do not consider this assists Mr Stewart. Associate Judge Gardiner had to decide whether parties who obtained judgments jointly must enforce them through separate bankruptcy notices. She did not address the issue Mr Stewart raises, that a bankruptcy notice in respect of a judgment made in favour of parties jointly must be issued by all of them.

[51]   For the reasons I have already given, I also do not accept that the inclusion of the costs judgment in the bankruptcy notice has caused any prejudice to Mr Stewart such that s 418 can have no application. As Mr Stewart has a common response to both judgments included in the bankruptcy notice he has not, in fact, suffered prejudice.

[52]   I therefore do not accept that the bankruptcy notice should be set aside because it was issued in respect of judgment debts owed to different sets of creditors.

Abuse of process

[53]   In reliance upon Re Wise, ex parte Benecke, Mr Hearn submits that the bankruptcy notice should be set aside as an abuse of process when Mr Stewart has an arguable case that the judgment obtained on his admission of claim was obtained irregularly because he was not in breach of the settlement agreement; and it is not necessary for the Court to consider that he has a high likelihood of success on appeal, it is sufficient that the appeal has merit.35

[54]   The Court has the power to set aside a bankruptcy notice to control abuse of its processes. In Re Wise, ex parte Benecke Master Kennedy-Grant identified that the Court might intervene where, for instance, there was a procedural defect in the

35     Re Wise, ex parte Benecke HC Auckland B227-228/95, 21 June 1995.

obtaining of the judgment or arguable grounds of defence existed at the time the judgment was given. However, as Associate Judge Osborne said in Izard Weston v Ayers, those observations should be seen in the context of the facts of that case in which judgment against the defendant was obtained by default.36

[55]   While Mr Hearn submits that obtaining judgment on an admission of claim is analogous to obtaining judgment by default, Mr Stewart’s argument that the judgment should not have been entered was considered and rejected by Churchman J after a full hearing on its merits. This is not a case where judgment was irregularly obtained against Mr Stewart or where his arguments were not considered by Churchman J. To the contrary, the Judge held:37

[38] … Mr Stewart has not been able to identify any duty or obligation on the part of the liquidators/company not to enter judgment on the admission. Neither has he been able to point to any information that would support a conclusion that in entering the judgment, the liquidators/company acted fraudulently, unconscionably or in wilful or reckless disregard of his rights.

[56]   While  both  counsel  addressed  me  on  matters  going  to  the  merits   of Mr Stewart’s appeal, I am not expressing a view on them. That is unnecessary to decide this application and a matter for the Court of Appeal.

[57]   Mr Hearn also submits that there is no prejudice to the judgment creditors if I set the bankruptcy notice aside, as if Mr Stewart is unsuccessful on this appeal the bankruptcy notice may be reissued. He argues that, in contrast, Mr Stewart will be prejudiced if the bankruptcy notice is not set aside because he will be exposed to the prospect of adjudication in bankruptcy despite the fact his appeal will be heard in the near future.

[58]   I do not accept that submission. In addition to the cost and inconvenience of having to reissue the bankruptcy notice should Mr Stewart’s appeal be unsuccessful, there are the obvious risks for his creditors arising from delay and any dealings with Mr Stewart’s property prior to the making of an order of adjudication.

36     Izard Weston v Ayers [2017] NZHC 3000 at [10].

37     Eversons International Ltd (in liquidation) v Stewart, above n 2.

[59]   The fact Mr Stewart has appealed does not of itself engage the Court’s power to set aside the bankruptcy notice as an abuse of process. I fully agree with the comments of Associate Judge Andrew in Callaghan Innovation v Johnson where he said:38

[23]   The scope of the Court’s jurisdiction to set aside a bankruptcy notice should be [sic] also be considered in light of the purpose of a bankruptcy notice. The purpose of a bankruptcy notice is to test the solvency of a debtor by seeing whether the debtor can comply with a formal demand based on an indisputable liability, a final court judgment or order.

[24]   It is well settled that an appeal does not operate as a stay of execution of the underlying judgment and that absent a stay, the judgment is to be regarded as final and capable of being enforced.

...

[26] I reject Mr Hucker’s principal submission  that  the  judgment debt being challenged through the appeal process is recognised as a primary ground for the exercise of the Court’s inherent jurisdiction to set aside a bankruptcy notice. …

(footnotes omitted)

[60]   There is nothing on the facts of this case that satisfies me that I should exercise the Court’s power to set aside the bankruptcy notice to avoid a miscarriage of justice. While Mr Hearn suggests that Mr Stewart will be exposed to the risk of being adjudicated bankrupt before the hearing of his appeal, he is not without options. When hearing an adjudication application the Court has a discretion whether to make an order. I would expect that an order would not be made if Mr Stewart’s appeal was not determined. Furthermore, Mr Stewart also has the option of applying for a stay of execution.39

An additional matter

[61]   For completeness only, I note that Mr Murray submits that if the Court was minded to set aside the bankruptcy  notice then it  should be  on the condition that  Mr Stewart pay the amount that would indisputably be presently overdue under the settlement agreement, being $400,000. As I have decided to dismiss the application to set aside the bankruptcy notice, I am not required to decide this issue.

38     Callaghan Innovation v Johnson [2021] NZHC 694.

39     At [31]–[32].

Result

[62]Mr Stewart’s application to set aside the bankruptcy notice is dismissed.

[63]   The judgment creditors are entitled to costs on a 2B basis plus reasonable disbursements. If there is any dispute as to the quantum of such costs and disbursements counsel may submit memoranda within 21 days.

O G Paulsen Associate Judge

Solicitors:

Martelli McKegg, Auckland Corcoran French, Christchurch