Gardiner v An
[2025] NZHC 986
•29 April 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2456
[2025] NZHC 986
BETWEEN CAROL ELIZABETH GARDINER
Judgment Creditor
AND
CHAO AN
Judgment Debtor
Hearing: 28 April 2025 Counsel:
C J Pendleton for the Judgment Creditor N G Lawerence for the Judgment Debtor
Judgment:
29 April 2025
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 29 April 2025 at 3 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Turner Hopkins, Auckland Clendon Webb, Auckland NG Lawrence, Auckland
GARDINER v AN [2025] NZHC 986 [29 April 2025]
Introduction
[1] The judgment creditor, Carol Gardiner (Mrs Gardiner), owned a property in Takapuna (the property). In 2022, Mrs Gardiner entered into a contract to sell the property to the judgment debtor, Chao An (Mr An). Mr An failed to settle the contract and Mrs Gardiner resold the property, suffering a loss on the resale.
[2] In 2024, Mrs Gardiner filed a proceeding against Mr An in the Auckland District Court seeking to recover her losses. Mrs Gardiner applied for summary judgment. Mr An was served with the proceeding and took no steps to defend it. On 29 August 2024, the Auckland District Court entered judgment against Mr An for
$332,211.19 plus interest and costs (the judgment).1
[3] On 15 October 2024, Mrs Gardiner served Mr An with a bankruptcy notice requiring payment of the amount due under the judgment, being $340,684.85. Mr An has applied to set the bankruptcy notice aside on the grounds that he has a set-off, counterclaim or cross demand that exceeds the amount claimed in the bankruptcy notice. Mr An says that he was induced to enter into the contract by misrepresentations regarding the state of the property, entitling him to cancel the contract.
Legal principles
[4] Section 17 of the Insolvency Act 2006 (the Act) prescribes the grounds for setting aside a bankruptcy notice where the debtor has a counterclaim, set-off or cross demand equal to or greater than the judgment debt, which could not be set up in the proceeding in which the judgment was obtained.
[5]Section 17 of the Act relevantly 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
1 Gardiner v An DC Auckland CIV-2024-004-001477, 29 August 2024 (Oral Judgment of Judge J Clark)
(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.
…
(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] Section 17(1)(d)(ii) requires a genuine triable cross claim for the enforcement of a right sounding in money that could not have been advanced as a defence in the proceeding in which judgment was obtained.2
[7] The inability to raise the asserted counterclaim, set-off or cross demand in the proceeding in which judgment was obtained is primarily concerned with the inability to do so as a matter of law. The Court may consider supervening circumstances that made it factually impossible for the debtor to advance the defence in the action, but such circumstances require careful scrutiny and simple neglect will not suffice.3
[8] In addition, the High Court has inherent jurisdiction to set aside a bankruptcy notice. The extent of the inherent jurisdiction was comprehensively reviewed by Master Kennedy-Grant in Re Wise,4 relevantly holding that:5
(c)The grounds on which the jurisdiction may be exercised are:
(i)procedural defect in the obtaining of the judgment on which the bankruptcy notice is based; and/or
2 Robertson v ASB Bank Ltd [2014] NZCA 597 at [17] and [23].
3 Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC) at 640.
4 Re Wise, ex parte Benecke HC Auckland B 227-228/95, 21 June 1995.
5 At 6.
(ii)the existence of arguable grounds of defence to the claim for which judgment was given;
(d)The grounds in which the jurisdiction may be exercised may extend beyond those stated in (d) [sic] to any ground on which the Court feels it necessary to intervene to prevent injustice but I make no finding on that point in this judgment;
[9] The above grounds suggest that it is necessary to demonstrate a substantive reason for questioning the soundness of the judgment.6
[10] In Holmes Construction Wellington Ltd v Rees,7 Associate Judge Faire (as he then was) adjourned an application to set aside a bankruptcy notice pending determination of an appeal of the underlying judgment, relying on the inherent jurisdiction. However, the underlying judgment appeared to have been irregularly obtained.
[11] In Halifax Finance Ltd v McFarlane,8 Associate Judge Gendall (as he then was) held that an appeal could amount to the existence of arguable grounds of defence justifying an exercise of the inherent jurisdiction to stay a bankruptcy notice.9 The Judge stayed the bankruptcy notice pending the decision on the appeal, which had already been heard.10
[12] Similarly, the inherent jurisdiction permits the stay or adjournment of an application to set aside a bankruptcy notice pending determination of an application to set aside a judgment.11
6 Krukziener v Hanover Finance Ltd HC Auckland CIV-2007-404-2896, 12 August 2008 at [29].
7 Holmes Construction Wellington Ltd v Rees HC Auckland CIV-2006-404-4219, 9 February 2007.
8 Halifax Finance Ltd v McFarlane HC Wellington CIV-2007-485-1377, 12 November 2007.
9 At [25].
10 At [28].
11 Next Level Finance Ltd v Waruhia HC Auckland CIV-2007-404-7275, 20 February 2008 at [10];
Bennett v Preston HC Palmerston North High Court CIV-2007-454-856, 28 October 2008 at [95].
Mr An’s argument
Background
[13] Mrs Gardiner had owned the property since 1984. It includes a two-storey dwelling. The property was marketed under the caption “Goodbye after 40 Years!”. Mr An acknowledges that he knew he was buying “an old property”.
[14] The photos included in the advertising campaign undertaken for Mrs Gardiner show an older style dwelling with stucco cladding to the ground floor, and timber weatherboards and roof tiles to the upper floor. The weatherboards and the roof tiles appear in the photos to be in poor condition.
[15] The photos of the interior of the dwelling used in the advertising campaign show that the interior of the upper floor was lined in aged gib-board, some of it in obviously poor condition. There is no plastering or painting evident in the photos. The floor is uncovered.
[16] There is limited evidence regarding Mr An’s inspection of the property and contact with the real estate salespeople before he committed to the purchase. Mr An says that, before the auction, he only inspected the outside of the dwelling and he relied on photos of the interior.
[17] On the day of the auction, Mr An signed a written acknowledgement that recorded that there was a leak in the “window/ceiling/wall juncture in the north facing window upstairs.” Mr An says that a salesperson took him to look at the interior of the upper storey before he signed the acknowledgement, and that he had an opportunity to view the window in question. He acknowledges that the salesperson did not make any further statements about the building defects.
The alleged misrepresentations
[18]There are two facets to Mr An’s claim of pre-contractual misrepresentations:
(a)The following statement in the marketing material:
… Zoned for ‘Mixed Housing Urban’ this prime site could host a townhouse development attracting interest from developers and builders. (Note: sea views would be attainable from an upper level)
Be that as it may, we still encourage those seeking large spacious accommodation to view the potential on offer here. With some upgrading downstairs and fitting out the undeveloped area upstairs, this could be big enough for various family combinations.
(b)Mr An says that he was pressured to sign the acknowledgment of the leak after he had signed the contract, and that the vendor failed to fully disclose the risk that leaks may have caused serious problems to the structure of the dwelling.
[19] Mr An does not attribute any misleading verbal statements to the real estate salespeople involved in the transaction. There is no affidavit evidence from the salespeople. Mr An’s case is that misrepresentations were made by half-truths, and there was a failure to disclose that there were significant defects in the upper storey and significant work required to complete a fitout of the interior of the upper storey.
[20] Mr An says that he assumed that the leaking window could be easily fixed. He believed that there were only minor leaks. He assumed that the only work required to the upper storey was a simple interior fitout.
[21] Mr An obtained advice from a builder and a building inspector after the auction and before settlement was due. He says that the advice he received was that the upper storey needed to be demolished and rebuilt.
[22] Mr An raised the alleged misrepresentations with Mrs Gardiner by a letter from his solicitors to her solicitors dated 21 July 2022, the day before settlement was due. The letter included a claim for compensation under the contract. Mrs Gardiner did not agree to a deduction on settlement, and her position was confirmed by an independent expert appointed under the contract to determine whether Mr An was entitled to make a claim for compensation. Mr An then failed to settle.
Analysis
[23] Mr An’s application to set aside the bankruptcy notice was advanced under s 17(1)(d) of the Act on the ground that Mr An has a counterclaim that he could not use as a defence in the District Court proceeding, because Mr An was not sufficiently aware of the District Court proceeding. Mr An accepts that the defence was legally available to him.
[24] Mr An was personally served with the District Court proceeding. The report from the process server includes a photo of Mr An holding a large bundle of what are obviously court documents, contained in a large transparent plastic bag.
[25] In Mr An’s first affidavit in support of his application to set aside the bankruptcy notice, he acknowledged receiving the “Court documents”. He asserted that he was not able to defend the proceeding because he left for China the same day, and when he returned from China he had “completely forgotten about the proceeding”.
[26] This position is contradicted in Mr An’s second affidavit, where Mr An attempts to bolster his position by describing the documents he received as “a courier package”, which he claims he did not open or review. Mr An then claims that he suspects that his mother-in-law disposed of the documents while he was in China, and when he returned from China, he had forgotten about “the package”. This evidence from Mr An invites the inference that he was not aware that he had been served with a proceeding in the District Court before he left for China.
[27] I reject that inference. It is inconsistent with Mr An’s first affidavit and the evidence that he received the court documents in a plastic bag directly from the process server. It would have been obvious to Mr An at the time of service that he had received documents of an official nature, and a glance would have revealed that they were court documents. His evidence that he had forgotten about the proceeding when he returned from China implicitly acknowledges that he had been aware of the proceeding before he left for China.
[28] Even if Mr An’s claim of misrepresentation is treated as a counterclaim or a set-off, it was available to him as a defence in the District Court proceeding which
resulted in the judgment. He is now prevented by s 17(7)(b) of the Act from asserting the same ground to obtain an order setting aside the bankruptcy notice. Therefore, I do not need to determine whether the misrepresentation claim is a genuine triable claim.
[29] The only other issue that I must decide is whether the Court should exercise its inherent jurisdiction to adjourn Mr An’s application to set aside the bankruptcy notice to allow him to apply to the District Court for an order setting aside the judgment, or for leave to appeal.
[30]I am not prepared to do so, for the following reasons:
(a)Mr An was served with the bankruptcy notice on 15 October 2024. Mr An has not yet filed an application for an order setting aside the District Court judgment. He has not explained why he has delayed doing so.
(b)Whether the District Court would set aside the judgment is a matter for that Court. However, I note that there is no satisfactory explanation of why Mr An failed to take any steps to defend the proceeding. It was possible for Mr An to mount a defence while he was in China. He had previously briefed his solicitors on the alleged misrepresentations.
(c)A cursory evaluation of Mr An’s claim of misrepresentation leads me to conclude that his claim is not strong. It appears that Mr An finds himself in his current predicament due to his own assumptions regarding the level of work that was required to the dwelling. There is nothing overtly misleading in the description of the property used in the advertising, and the real estate salesperson pointed out the known leak to one of the windows in the upper story.
(d)Mrs Gardiner’s next step is to file an application for an order adjudicating Mr An bankrupt. It remains open to Mr An to apply to the District Court for an order setting aside the judgment, or for leave to
appeal, and to apply to this Court for an order halting a bankruptcy proceeding.
Result and orders
[31]The application to set aside the bankruptcy notice is dismissed.
[32] The judgment debtor shall pay the judgment creditor’s costs on the application on a 2B basis, including preparation of the bundle for the hearing and .25 of a day for appearance at the hearing, together with disbursements as fixed by the Registrar.
Associate Judge Brittain
0