Falls Road Properties Ltd v Fletcher

[2012] NZHC 698

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV 2011-488-816

CIV 2011-488-817 [2012] NZHC 698

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the Bankruptcy of Paul Leslie Fletcher and Maureen Elizabeth Fletcher

BETWEEN  FALLS ROAD PROPERTIES LIMITED Judgment Creditor

ANDPAUL LESLIE FLETCHER AND MAUREEN ELIZABETH FLETCHER Judgment Debtor

Hearing:         16 April 2012

Appearances: D J G Cox for Judgment Creditor

P J Magee for Judgment Debtor

Judgment:      16 April 2012

(ORAL) JUDGMENT OF PETERS J

Solicitors:

Thomson Wilson, Whangarei – [email protected]

Rennie Cox, Auckland - [email protected]

FALLS ROAD PROPERTIES LTD V FLETCHER HC WHA CIV 2011-488-816 [16 April 2012]

[1]      Each of the judgment debtors, Mr and Mrs Fletcher, seek orders pursuant to either ss 37 or 38 of the Insolvency Act 2006 (“the Act”) in respect of applications for orders of adjudication made by Falls Road Properties Limited (“Falls Road”). Section 37 of the Act provides that the Court may refuse to adjudicate a debtor bankrupt in certain circumstances and s 38 allows the Court to halt a creditor’s application for adjudication, on such terms and conditions, and for the period, that the Court thinks appropriate.  Mr and Mrs Fletcher have the onus of persuading me

that I should make an order under ss 37 or 38 of the Act.[1]

[1] McHardy v Wilkins and Davies Marinas Ltd (in receivership) CA54/93, 7 April 1993 at 3.

[2]      Falls  Road’s  applications  arise  from  a  decision  given  by  his  Honour, Venning J, on 30 September 2011 in proceedings that Falls Road brought against the Fletchers in CIV 2010-488-000604 (“CIV 604”).  His Honour entered judgment for Falls Road in the sum of $625,000.00 and for a further sum of $160,894.76 in respect of additional losses.  His Honour also awarded interest to Falls Road, running from September 2010, and costs.

[3]      Neither Mr nor Mrs Fletcher has paid the sum due, and there is no dispute that their failure to do so constitutes an act of bankruptcy on the part of each of them.

[4]      The ground on which Mr and Mrs Fletcher seek the orders to which I have referred is that they have a claim outstanding against third parties, namely Mr and Mrs  Hull,  being  proceeding  CIV  2009-488-000762  (“CIV  762”).    The  trial  of CIV 762 is to commence on 21 May 2012, so in a little over four weeks’ time, and

10 days has been allocated for the hearing.

[5]      CIV 762 arises from an agreement for sale and purchase entered into by the Fletchers as vendors and the Hulls as purchasers in or about 2007.  Pursuant to the terms of the agreement for sale and purchase, the Hulls were to acquire a substantial parcel or parcels of land owned by the Fletchers for $5,000,000.00.   The Hulls defaulted on their obligations under the agreement for sale and purchase.  CIV 762 is

the proceeding that the Fletchers commenced against the Hulls in respect of that

default, and it was commenced in November 2009.   Apparently the Hulls do not dispute liability.   The issues which are to be determined  go to  the quantum of damages, if any, for which the Hulls may be liable as a result of their default. Counsel for the Fletchers advises me that the Fletchers are seeking an award of damages of approximately $5,000,000.00, that sum comprising claims under several different heads of damage.

[6]      CIV 604 arose out of the same agreement for sale and purchase but nothing in particular turns on that for the purposes of the present issue I have to decide.

[7]      The Fletchers have served their expert evidence in support of their claim for quantum in CIV 762 and that evidence comprises a brief or briefs of evidence from a valuer(s) and from a real estate agent(s).  The Hulls’ expert evidence is to be served shortly.  The Judge who is to hear CIV 762 has ordered that there be a conference of the experts in the second week of May 2012.

[8]      As I have said, there is no dispute that Mr and Mrs Fletcher have each committed an act of bankruptcy.  From the evidence available at present, it appears that the Fletchers’ existing creditors are the Hulls and Southland Building Society. In the usual course of events, a creditor can expect an order for adjudication if there has been an act of bankruptcy.   However, the Court does have discretion to decline to make such an order, or to delay determining the matter for a period of time, if the circumstances of the case warrant.

[9]      From the authorities cited to me, it is clear that the fact that the judgment debtor has a claim against a third party is one matter which might warrant a stay at least of any application to adjudicate a debtor bankrupt.[2]

[2] See Kroon v Westpac Banking Corporation HC Auckland CIV-2006-404-4720, 24 April 2007 and

Burford ex parte Simpson HC Tauranga B7/95, 24 October 1995.

[10]     In this case the trial in CIV 762 is close at hand, the sum in dispute is substantial and there does not appear to be any pressing need for Falls Road to have

an order for adjudication now.

[11]     Counsel for the Fletchers has referred to the fact that Mr Hull is the sole director and shareholder of Falls Road.  I accept that the Hulls might benefit if an order for adjudication were made now, because the right to pursue the proceeding in CIV 762 would vest in the Official Assignee, who might decide not to pursue the claim.  In this particular case, I do not consider this fact to be relevant to whether I should grant or decline a stay of the application for adjudication.  The proximity to trial and the fact that the Fletchers’ claim appears to have substance are the critical factors.

[12]     I am satisfied that the circumstances of this case warrant an order halting Falls Road’s applications for orders of adjudication, pursuant to s 38 of the Act.  I order that the applications be halted, pending further order of the Court or 21 May

2012, whichever is earlier.

[13]     Counsel are agreed that costs should be reserved, and I order accordingly.

..................................................................

M Peters J