Fortune Technology Corporation Limited (in liquidation) v Stollery
[2019] NZHC 1430
•19 June 2019
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2019-470-000021
[2019] NZHC 1430
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of Anthony Ross Stollery
BETWEEN
FORTUNE TECHNOLOGY
CORPORATION LIMITED (IN LIQUIDATION)
First Judgment CreditorMALCOLM GRANT HOLLIS and WENDY ANN SOMERVILLE as
liquidators of Fortune Technology Corporation Limited (in liquidation) Second Judgment Creditor
AND
ANTHONY ROSS STOLLERY
Judgment Debtor
CIV-2019-470-000022 BETWEEN
FORTUNE TECHNOLOGY
CORPORATION LIMITED (IN LIQUIDATION)
First Judgment CreditorMALCOLM GRANT HOLLIS and WENDY ANN SOMERVILLE
Second Judgment Creditor
AND
HALINA TERESA STOLLERY
Judgment Debtor
Hearing: 19 June 2019 Appearances:
J Hakaria for Judgment Creditor
Judgement Debtors (A Stollery and H Stollery) in Person
Judgment:
19 June 2019
FORTUNE TECHNOLOGY CORP LTD (IN LIQ) & OR v STOLLERY & OR [2019] NZHC 1430 [19 June 2019]
ORAL JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
Introduction
[1] The judgment debtors, Mr and Mrs Stollery, apply to set aside bankruptcy notices issued against them pursuant to s 17 of the Insolvency Act 2006. They contend that they have genuinely triable cross-claims that the judgment debt at issue has been settled as part of a binding contractual agreement to discontinue longstanding legal proceedings. Those proceedings commenced in this Court but were transferred to the District Court.
[2]The judgment debt giving rise to the bankruptcy notices is a costs award of
$6,927 made by Lang J on 17 May 2018 in High Court proceedings at the Tauranga Registry CIV-2017-470-197 (the 197-proceedings). Those were proceedings brought by the judgment creditors, the liquidators of Fortune Technology Corporation Ltd, against Mr and Mrs Stollery, its former directors. These proceedings were discontinued by the liquidators in February of this year and at a time when the costs award was outstanding. The Notice of Discontinuance filed expressly stated that there was no issue as to costs.
[3] The critical issue that I must determine is whether the Stollerys have a genuinely triable cross-claim that all issues between the parties, including the outstanding costs award of $6,927, have been settled. As I see it, that depends on the interpretation of the correspondence between the parties and the terms of the Notice of Discontinuance.
Relevant legal principles
[4]Section 17(1) of the Insolvency Act 2006 provides:
17 Failure to comply with bankruptcy notice
(1)A debtor commits an act of bankruptcy if –
(a)a creditor has obtained a final judgment or a final order against the debtor for any amount; and
(b)execution of the judgment or order has not been halted by a court; and
(c)the debtor has been served with a bankruptcy notice; and
(d)the debtor has not, within the time limit specified in subsection (4), –
complied with the requirements of the notice; or
(ii)satisfied the Court that he or she has a cross claim against the creditor.
[5]Section 17(7) of the Insolvency Act reads:
(7)In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that –
(a)is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and
(b)the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.
[6] Rule 24.10 of the High Court Rules 2016 deals with applications to set aside bankruptcy notices. The commentary, McGechan on Procedure, states:1
An applicant under s 17(1)(d)(ii) of the Insolvency Act must show that he or she has a genuine, triable counterclaim, set-off, or cross-demand that he or she was unable to use as a defence in the action in which the relevant judgment was given: Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC). The Court of Appeal approved this test in Sharma v ANZ Banking Group (NZ) Ltd (1992) 6 PRNZ 386 at 389 …
The inability to use as a defence the counterclaim, set-off or cross-demand is primarily a legal inability: Hardie v Booth [1992] 1 NZLR 356. A factual inability may also suffice, but that would require some cogent circumstance. Tipping J in Hardie stated at 362:
To take a looser view would be to frustrate the purpose of the rule which is obviously designed to ensure that all issues between the parties both ways be tried at once and that a bankruptcy notice only be set aside if the debtor has a cross-claim which either legally or factually could not be set up in the same proceedings. As Casey J said in Clark’s case the primary emphasis is on the legal nature of the impediment and therefore any factual grounds for the suggestion that the cross-claim could not be set up must be carefully scrutinised.
1 Andrew Beck and others McGechan on Procedure (online ed, Brookers) at [HR24.10.03].
Background
[7] Some of the background to this litigation I set out in my judgment of 6 November 2018 in which I dismissed the plaintiff liquidator’s application for summary judgment.2
[8] On 15 December 2017, Katz J granted the judgment creditor’s freezing orders over the family home of the Stollerys owned by their family trust at Mount Maunganui. The costs order was subsequently made against the Stollerys after they abandoned their application to set aside the freezing order in that proceeding.
[9] In my summary judgment decision, I indicated to the parties that they should consider a transfer of the 197-proceedings to the District Court, and that subsequently occurred. A case management was scheduled in the District Court in February 2019, presumably to make directions for the progression of the substantive proceeding.
[10] On 19 February 2019, Mr Stollery advised the Registrar of the District Court that he would not be in New Zealand on the proposed date for the case management conference. Following that, there was an exchange of correspondence between the parties, and the solicitors for the plaintiff liquidators sent an email dated 20 February 2019 to Mr Stollery. That email stated as follows:
Attached is a Notice of Discontinuance which will bring the above proceedings to an end. If you and Halina could sign the notice and return it to me (scanned and email is fine) then I will sign it and file it with the Court. There will be no need for the case management conference.
[11] The Notices of Discontinuance which the Stollerys then signed and sent back were attached to the email and they read as follows:
The plaintiffs discontinue the claim against:
(a)the first defendant, Anthony Stollery; and
(b)the second defendant, Halina Stollery.
Pursuant to r 15.20 of the District Court Rules 2014 there are no issues as to costs.
2 Fortune Technology Corporation Ltd v Stollery [2018] NZHC 2855.
Analysis and decision
[12] As I have already noted, the critical issue is essentially one relating to the interpretation of the email and the Notice of Discontinuance. My conclusion is that the Stollerys do have a genuinely triable cross-claim. In my view, it is clearly arguable
– and is an argument which has significant merit in my view – that the parties did come to a binding contractual arrangement that the plaintiffs would discontinue the proceedings and that all outstanding issues between the parties, including the outstanding costs award, the freezing order and the substantive claim left over from the summary judgment, would come to an end.
[13] The Supreme Court has held in a recent decision, Firm PI 1 Ltd v Zurich Australian Insurance Ltd, that the proper approach to contractual interpretation is an objective one, the aim being to ascertain:3
… the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract …
[14] The Supreme Court also held that, while context is a necessary element of the interpretive process, when the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant.
[15] As Mr Stollery submitted, the proceedings being discontinued were the 197- proceedings. It is also important to note that at the time that the discontinuance was filed, the Stollerys were self-represented. In my view, it is clearly arguable that an objective bystander, in interpreting these documents, would conclude that there was an agreement that all matters, including the outstanding costs award, had been settled. If there had been a mutual intention to exclude the costs award, which I accept still remained outstanding as at February 2019, then one would have expected to have seen an express reference or provision excluding the costs award from the Notice of Discontinuance.
3 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
[16] I accept the submission of Mr Hakaria that a discontinuance does not necessarily bring to an end outstanding, stand-alone interlocutory orders. However, in this case, what the Stollerys contend for is that there was a fresh contractual arrangement between the parties in which they agreed that the outstanding costs award effectively was abandoned. It is entirely understandable, looking at matters from an objective point of view, as to how they came to that understanding. The plaintiff liquidators were, after all, abandoning their summary judgment application and ordinarily the defendants, with the filing of a Notice of Discontinuance, would be entitled to costs. So, both parties were effectively giving up something and came, in my view, to what is clearly an arguable, binding contractual arrangement.
[17]I also note that the argument – the arguable cross-claim that the Stollerys have
– was not available to them at the time the costs award was made. In my view, this puts them squarely within s 17(7) of the Insolvency Act 2006. Their arguable cross- claim could not have been raised at the time that Lang J made the costs award because what has happened is that the costs award has essentially been overtaken by a fresh contractual arrangement which has brought the obligation to pay the costs to an end.
[18] I reject Mr Hakaria’s argument that the defence or cross-claim has to be available to the judgment debtor at the time of judgment. Obviously, in this case, on the Stollerys’ own argument they could not have raised this binding contractual argument at the time Lang J made his order. But, in my view, that does not matter. Their defence, as I see it, squarely falls within s 17(7) of the Insolvency Act 2006.
[19] I also reject the argument of Mr Hakaria that there is some procedural irregularity with the application made by the Stollerys. It is correct that the application does refer to setting aside the “request to issue a bankruptcy notice”. Mr Hakaria is correct insofar as he submits that what the Stollerys really seek is to actually set aside the bankruptcy notices themselves. However, in my view, there is nothing really in his point. It is clear to all concerned, including the plaintiff liquidators, that the Stollerys challenge the substance of the bankruptcy notices that have been issued against them.
[20] I have concluded that the Stollerys have an arguable claim based on the statutory scheme of the Insolvency At 2006. I see their cross-claim arising under the statute and it is thus not necessary for me to resort to the inherent jurisdiction.
[21] I note that Mr Hakaria does refer to r 15.20 of the District Court Rules 2014 and submits that this assists him in the interpretation that the Notice of Discontinuance does not preclude the judgment creditors from pursuing the outstanding costs award. However, what is critical, in my view, is that the Notice of Discontinuance, read together with the email, does give rise to a clearly arguable claim that all matters had been settled. The Stollerys signed the Notices of Discontinuance on the basis of the communication in both the email and the wording of the Notices of Discontinuance themselves.
[22] For all these reasons, I conclude that Mr and Mrs Stollerys’ applications should be granted. I accordingly rule that the bankruptcy notices in both cases are set aside.
Result
[23] The application by the judgment debtor, Mr Anthony Ross Stollery, dated 27 March 2019, to set aside the bankruptcy notice in CIV-2019-470-000021, is granted. The bankruptcy notice is set aside.
[24] The application by Mrs Halina Stollery, dated 27 March 2019, in CIV-2019- 470-000022, is granted. The bankruptcy notice is set aside.
[25]There is no order as to costs or disbursements.
Associate Judge P J Andrew
Solicitors:
Sharp Tudhope, Tauranga
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