General Finance Limited v Denard
[2017] NZHC 1743
•26 July 2017
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2016-454-90 [2017] NZHC 1743
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of
Deborah Cherie DeNardBETWEEN
GENERAL FINANCE LIMITED Judgment creditor
AND
DEBORAH CHERIE DENARD Judgment debtor
Hearing: 13 July 2017 Appearances:
Ms Hojabri for the judgment creditor
Mr P Drummond for the judgment debtor (given leave to withdraw)
Ms DeNard in person
Judgment:
26 July 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The Judgment Creditor (General Finance) applies for an order adjudicating
Ms DeNard bankrupt.
Background
[2] General Finance obtained summary judgment against Ms DeNard in the Wellington District Court on 24 February 2016, following a defended hearing in that court on 5 February 2016. Ms DeNard had signed an agreement to purchase a Wellington apartment but had failed to pay the deposit of $126,000. General Finance successfully sued her to recover the $126,000. The amount of the
judgment entered by Judge Tuohy, inclusive of interest and costs, was $134,807.73.
GENERAL FINANCE LIMITED v DENARD [2017] NZHC 1743 [26 July 2017]
[3] Ms DeNard did not appeal the judgment within the 20 working days allowed for appeals from the District Court,1 and she did not apply for a rehearing in that court. No order has been made staying the judgment or execution on it.
[4] General Finance issued a bankruptcy notice in this court on
19 September 2016. An affidavit sworn by a process server, Mr Hayden, shows that the bankruptcy notice was served on Ms DeNard on 27 October 2016.
[5] In accordance with s 17 of the Insolvency Act 2006 (the Act) and the terms of the bankruptcy notice itself,2 Ms DeNard had 10 working days from the date of service of the bankruptcy notice to apply to this court for an order setting it aside on the basis of any counterclaim, set-off, or cross-demand she considered she had.
[6] On 15 November 2016 Ms DeNard filed in the Palmerston North Registry of this court a document entitled “Interlocutory Application to Set Aside Bankruptcy Notice” (the Interlocutory Application). The Interlocutory Application was not accompanied by an affidavit, and it was filed outside the 10 working day period allowed for applying to set aside a bankruptcy notice.
[7] A copy of the Interlocutory Application was not served on General Finance within the 10 working day period.
1 High Court Rules r 20.4(2)(b).
2 Rule 24.8 of the High Court Rules requires that every bankruptcy notice is to be in form B2 of the first schedule to the High Court Rules. Form B2 contains the following notes for the assistance of the person served with the bankruptcy notice:
Procedure for counterclaiming, etc
If you consider you have a counterclaim, set-off, or cross-demand against the judgment creditor that comes within pararaph 1(c), or you wish to seek the court’s approval of terms of payment, you must, within 10 working days from the date of receiving this notice, apply to the High Court. You application must be supported by affidavit.
You must, within the same time, also serve a copy of the application and supporting affidavit on the judgment creditor.
That advice was duly included in the bankruptcy notice which was served on Ms DeNard.
[8] Ms DeNard subsequently contended that she was told by a member of the court registry staff that she had until 15 November 2016 to get an application to set aside the bankruptcy notice filed. However as I noted in my minute issued on
6 April 2017, it is difficult to understand why any member of the registry staff would have told her that, unless he or she had been advised that the bankruptcy notice was served on Ms DeNard some days later than it was in fact served. In any event, it was Ms DeNard’s responsibility to get any application filed and served within the time allowed by the rules; she was quite capable of doing that herself.
[9] The authorities make it clear that the court has no jurisdiction to extend the
10 working day period for filing and serving an application to set aside a bankruptcy notice.3
[10] Ms DeNard therefore committed an act of bankruptcy when the 10 working day period expired and the amount demanded in the bankruptcy notice had not been paid.
The adjudication application
[11] The adjudication application was filed on 22 November 2016. It was first called on 23 February 2017 before Associate Judge Christiansen. The Associate Judge’s file note contains the words “Appeal filed”. His Honour adjourned the application to 6 April for call, and “to allocate fixture if needed”.
[12] When the matter was called before me on 6 April 2017, Ms DeNard told me that no formal appeal to this court has been filed. In my minute of the hearing that day I recorded my advice to Ms DeNard that:
… it is not generally the role of this court sitting in its bankruptcy jurisdiction to look behind the judgment properly entered in the District Court. If a defendant in a District Court proceeding disagrees with a judgment entered in that proceeding the proper course for that defendant is to file an appeal to the High Court, and not to sit back and do nothing, waiting for the creditor to take steps to enforce the judgment.
3 See for example ANZ Bank New Zealand Ltd v Edwards [2013] NZHC 2756 at [10].
[13] I adjourned the matter to 10.00am on 1 June 2017, and urged Ms DeNard to obtain legal advice.
[14] On 23 May 2017 Ms DeNard filed a memorandum seeking an adjournment of the 1 June hearing, on the basis that she had arranged to consult Mr Drummond, and that he would need further time to prepare for the hearing. I convened a telephone conference on 29 May 2017 to deal with the adjournment application. Ms DeNard was represented at that telephone conference by Mr Drummond, who accepted that what Ms DeNard required was an adjournment or stay of the bankruptcy proceeding to enable her to obtain an extension of time to appeal the District Court judgment (and obtain a decision on the appeal if leave is granted). Mr Drummond asked for an adjournment to enable him to obtain detailed instruction from Ms DeNard, and to progress a legal aid application on her behalf. I adjourned the matter to 2.00pm on 13 July 2017 to allow Ms DeNard to pursue any legal aid application, and any appeal she may instruct Mr Drummond to file, with urgency. I noted in my minute of the telephone conference that if legal aid was not granted by
13 July 2017 and a hearing date had not by then been secured for the intended appeal, the likelihood was that the adjudication application would be heard and dealt with on 13 July 2017.
[15] I convened a further telephone conference, to monitor progress, on
30 June 2017. No significant progress had been made. I directed that the matter should remain listed for hearing on 13 July, on the basis that if Ms DeNard had not by then secured a grant of legal aid, and had not otherwise arranged legal representation, it would be for her to appear and present her case in opposition to the application for adjudication on 13 July 2017.
[16] Mr Drummond sought leave to withdraw when the case was called on 13 July
2017. He had filed no formal documents on Ms DeNard’s behalf, and the proposed appeal had not been progressed. Ms DeNard having no objection, I granted leave to Mr Drummond to withdraw as counsel.
The law governing creditors’ applications for bankruptcy orders
[17] Section 13 of the Act provides:
When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a) the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and
(b) the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c) the debt is a certain amount; and
(d) the debt is payable either immediately or at a date in the future that is certain.
[18] In this case, Ms DeNard clearly owes General Finance a sum in excess of
$1000, and she committed an act of bankruptcy when she failed to comply with the bankruptcy notice served on her on 27 October 2016. General Finance filed its application for adjudication on 22 November 2016, well within the period of
3 months after the act of bankruptcy relied upon. The debt is for a certain amount, and is payable immediately. General Finance has therefore made out the jurisdictional requirements of s 13 of the Act.
[19] The court nevertheless has a discretion as to whether it will make an adjudication order. Section 37 of the Act provides:
Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a) the applicant creditor has not established the requirements set out in section 13; or
(b) the debtor is able to pay his or her debts; or
(c) it is just and equitable that the court does not make an order of adjudication; or
(d) for any other reason an order of adjudication should not be made.
[20] The court’s starting point in considering a creditor’s application is that the
applicant, having satisfied the requirements of s 13, is prima facie entitled to an
order of adjudication. The order is not to be refused on the grounds of expedience or convenience, but each case must be considered on its own terms.4
[21] Once the creditor has proved the jurisdictional requirements of s 13, it is for the debtor to show why an adjudication order should not be made. The court will give proper weight to the commercial judgment of the creditor, but if the circumstances suggest that the bankruptcy process is being used oppressively, that might justify refusal of an order. On the other hand, proof that a debtor has assets will not necessarily preclude an order given the range of interests that may be involved including the public interest in continuing oversight of a bankrupt’s affairs and the disqualifications that go with the bankruptcy. In the end, the court is required to balance the various considerations relevant to the case and determine whether the debtor has made out a case that an adjudication order should not be
made.5
The Interlocutory Application
[22] Ms DeNard has not filed and served a notice of opposition, which a debtor who wishes to oppose a bankruptcy application is required to do by 1pm on the last working day before the hearing.6 At least until the hearing on 13 July 2017, the only document of which the court was aware which might be considered as an informal notice of opposition, was the Interlocutory Application which Ms DeNard had filed before the adjudication proceeding was filed. Ms DeNard has not provided any
sworn evidence.
[23] The Interlocutory Application challenges the judgment of Judge Tuohy on the summary judgment application. Among other matters, Ms DeNard contends that the judge failed to consider the protections available to purchasers under the Consumer Guarantees Act 1993, saying that the apartment had not been inspected and did not have a Code Compliance Certificate (CCC). Ms DeNard referred in the
Interlocutory Application to certain clauses in the agreement for sale and purchase
4 Strachan v Moodie [2014] NZHC 3167 at [35].
5 Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 4.
6 High Court Rules, r 24.18.
under which General Finance had agreed to sell the apartment to her, which provided for deferral of settlement where a CCC has not been issued by settlement date.
[24] Ms DeNard stated in the Interlocutory Application that she did not have the opportunity to put to the District Court her claims of breach of the agreement for sale and purchase by General Finance.
[25] Ms DeNard also referred in the Interlocutory Application to a counterclaim for $371,644.73, based on various alleged losses suffered by her. All of the allegations in the Interlocutory Application appear to relate to alleged breaches by General Finance of the agreement for sale and purchase which was the subject of the judgment in the District Court.
[26] The Interlocutory Application did not contain any explanation why these matters could not have been raised in the District Court proceeding.
The parties’ submissions
[27] Ms Hojabri submitted that, even if the court were to accept the Interlocutory Application as an informal notice of opposition to the bankruptcy adjudication application, the matters raised by Ms DeNard are no more than an attempt to re- litigate the original summary judgment issues, in which the District Court ruled against Ms DeNard.
[28] Ms Hojabri submitted that it was incumbent on Ms DeNard to appeal and/or apply for a stay of the District Court’s judgment if she took issue with it, but she has not done so and is now well out of time to do so — the District Court judgment was given more than a year ago. Ms DeNard did nothing but wait until General Finance took steps to enforce the judgment, and is now, inappropriately, using the court’s insolvency jurisdiction to “rehash” issues already determined in another proceeding.
[29] In her oral submissions, Ms DeNard frankly acknowledged that her grounds of opposition are centered on her contention that the District Court decision was wrong, and that judgment should not have been entered against her. She
acknowledged that she cannot pay the amount demanded by General Finance, but expressed the view that she should not have to pay it.
[30] Ms DeNard submitted that the issue of whether the apartment had been inspected was not raised at the summary judgment hearing, where the only issue was whether the agreement for sale and purchase was an illegal contract (having regard to certain requirements of the Building Act 2004 relating to commercial on-sellers of properties obtaining CCCs before settlement). Ms DeNard referred to Judge Tuohy’s view that if the transaction had settled, General Finance may have been in breach of the relevant section of the Building Act, but there was no settlement because General Finance cancelled the contract before settlement (on account of Ms DeNard’s failure to pay the deposit).
[31] Ms DeNard acknowledged that she had filed a notice of opposition and an affidavit in opposition in the District Court, and she accepted that she had raised in those documents all the matters which she wished to argue. Judge Tuohy’s judgment was then given after a defended hearing.
[32] Ms DeNard stated that General Finance never told her that it had no CCC for the apartment, and she referred to the apartment remaining unoccupied for some time after the agreement to sell it to her had been cancelled (apparently in support of a contention that the absence of a CCC prevented General Finance from dealing with the property for a lengthy period).
[33] Ms DeNard accepted in her submissions that she had no excuse for failing to file a timely appeal against the judgment of Judge Tuohy, but explained that she had been going through a number of personal difficulties over the period since the judgment was given. The personal difficulties included a serious illness suffered by her adult son in late August 2016, which required hospital treatment until the first week of October. There were further personal difficulties when Ms DeNard’s son and his partner separated, and Ms DeNard was required to travel on a regular basis to the Hawkes Bay to assist with her son’s care. The problems were compounded in February of this year when Ms DeNard’s mother suffered a stroke. She says that she is now looking after her mother on a full-time basis.
[34] Ms DeNard submitted that all of these personal issues made it very difficult for her to focus on the steps she needed to take to deal with the court proceedings. She stated that what she now wants is to obtain a hearing of her appeal against the District Court judgment.
[35] Ms DeNard produced a copy of a letter in support of her opposition to the bankruptcy application, from Ms DeNard’s fellow director in a travel company. The letter refers generally to the co-director’s age, and her intention to retire from the company within the next 1–2 years. Any bankruptcy of Ms DeNard would put pressure on the co-director and the company, as Ms DeNard would be unable to continue as a director. The co-director would be obliged to continue as sole director, causing difficulties not only for herself but also affecting the time she wishes to spend with her elderly husband.
[36] In reply, Ms Hojabri expressed General Finance’s sympathy for the difficult personal circumstances Ms DeNard has encountered since the District Court judgment, but pointed out that General Finance has been out of its money for over a year. In that time, no appeal against the judgment has been filed, and no application has been made for an extension of time to appeal. Ms DeNard has simply delayed matters, and only decided to instruct a solicitor about two months ago. Ms Hojabri submitted that there is no basis for the court to decline or delay the making of an adjudication order. The only question for the court is Ms DeNard’s solvency, and she has admitted that she cannot pay the debt. That is sufficient for the court to make an adjudication order.
Further documents produced by Ms DeNard
[37] Before Ms Hojabri had completed her reply submissions, Ms DeNard produced a number of documents which were not on the court file. First, she produced a document described on its backing sheet as “Notice of Appeal”, dated
15 November 2016 and signed by Ms DeNard. The backing sheet shows Palmerston North and Wellington Registry date stamps of “15 Nov 2016” and “21 Nov 2016” respectively, and it is stamped with the word “DUPLICATE” (in the ordinary way for service copies of documents filed in court).
[38] The second document produced by Ms DeNard was a document, apparently filed in the Palmerston North registry on 15 November 2016 and received in the Wellington Registry on 21 November 2016, styled “Interlocutory Application to Set Aside a Bankruptcy Notice” (the second application). The second application is not the same as the Interlocutory Application, although it has the same title on the backing sheet. Again, the word “DUPLICATE” is stamped on the backing sheet.
[39] The text of the second application is different from that of the Interlocutory Application in a number of respects. It also contained two backing sheets, one with the court stamps and the other with no stamps.
[40] The textual variations between the Interlocutory Applications and the second application include a new paragraph 11 in the second application referring to the filing of a supporting statement of claim. There is also an application for relief by way of counterclaim. Unlike the Interlocutory Application, the second application handed up by Ms DeNard does not bear any signature.
[41] The third document handed up by Ms DeNard was the “Statement of Claim” just referred to. It also bears on the backing sheet court date stamps appearing to show that it was filed in the Palmerston North Registry on 15 November 2016 and received in the Wellington Registry on 21 November 2016. Again, the word “DUPLICATE” has been stamped on the backing sheet.
[42] Included with the notice of appeal, statement of claim, and the second interlocutory application handed up by Ms DeNard at the hearing was a copy of the reserved judgment of Judge Tuohy, marked up with comments in respect of various passages in the judgment.
[43] Ms Hojabri advised that these documents were not served on General Finance. Ms DeNard stated that they were, and that copies were also given to Mr Drummond.
Discussion and conclusions
[44] Ms DeNard accepts that she cannot pay the judgment debt. She is accordingly insolvent, and the only question is whether she has put forward sufficient to persuade the court either (i) that the adjudication application should be refused on just and equitable grounds or (ii) that the court should make an order adjourning or halting the adjudication proceeding while Ms DeNard applies for an extension of time to appeal against the District Court judgment.
[45] I do not see any basis on which the adjudication application could be refused on either of the grounds set out in s 37(c) or (d). General Finance has obtained a judgment, on which execution has not been stayed, and it is entitled to the fruits of that judgment. There is no question of oppression on the part of General Finance, or any other factor which would suggest that it has been using the bankruptcy process for any improper purpose. Nor has Ms DeNard put forward anything in her personal circumstances which would justify refusal of the application (I do not consider the letter from the co-director raises sufficient to justify refusal of an adjudication order. An adjudication order will not necessarily mean that Ms DeNard will be precluded from continuing to work in the travel company; that would be a matter for Ms DeNard to discuss with the Official Assignee. Also, there is no evidence before me that it would be impracticable for someone else to be appointed director in Ms DeNard’s place.)
[46] The only issue, then, is whether I should make a halt order under ss 38 or 42 of the Act, or adjourn the proceeding, to allow Ms DeNard to apply for an extension of time to appeal the District Court judgment and obtain a decision on the appeal if an extension is granted.
[47] I am not prepared to make either of those orders. The District Court judgment was entered as long ago as 24 February 2016, and Ms DeNard has had approximately 17 months to file valid appeal documents. She has not done so. Any appeal should have been filed and served within 20 working days of the District
Court judgment.7
7 High Court Rules, r 20.4(2)(b).
[48] I acknowledge the personal difficulties Ms DeNard has had to grapple with in the period since the District Court judgment was entered. But from what Ms DeNard told me at the hearing it appears that those personal difficulties did not arise until late August 2016, when her son became ill. Following the judgment in the District Court, Ms DeNard told me that she had regarded the District Court proceeding as “done and dusted”.
[49] In more recent times the proceeding has been adjourned to allow Ms DeNard to take legal advice. She has in my view had every opportunity to make any application to extend the time for appealing the District Court judgment, but by the time of the hearing on 13 July 2017 she had taken no step in that regard.
[50] As for the Notice of Appeal and Statement of Claim produced by Ms DeNard at the hearing, these documents do appear to have been filed in the court on
15 November 2016. However no affidavit has been provided proving that they were served on General Finance, and the existence of the Notice of Appeal was not referred to at the hearing on 6 April 2017, or at either of the subsequent telephone conferences.
[51] If it were just a question of an appeal having been filed without an accompanying application for an extension of time to appeal, and the debtor had shown that he or she was actively pursuing the appeal, I might have been prepared to consider making a halt order or ordering an adjournment, to allow the appeal to be progressed. But in this case it appears that nothing has been done since November 2016 to progress the appeal. I made it clear in my minute of 6 April 2017 that Ms DeNard should take any steps she wished to take to get an appeal filed, indicating that the court would not be likely to entertain argument on the merits of the District Court judgment at the hearing of the adjudication application. Notwithstanding that advice, no attempt has been made to progress any notice of appeal which may have been filed, and no application for extension of time to appeal has been filed. As at the date of the hearing, there was no indication from Ms DeNard as to when she intended to take either of those steps. It appears that the determination of any appeal she might be allowed to bring, would be months away.
That is not good enough in circumstances where Ms DeNard has been aware for some months of the need to move forward urgently with any appeal.
[52] While it is not for this court sitting in its bankruptcy jurisdiction to act as an “appeal court” in respect of the District Court judgment, I think some regard can be had to the merits of any appeal in considering whether declining a halt order or adjournment would or might result in injustice to Ms DeNard.
[53] First, Ms DeNard acknowledges that she filed a notice of opposition and an affidavit in the District Court, and that she set out in those documents all of the arguments she then wished to raise. She participated in the defended hearing, and appears to have accepted the judgment, at least until she was served with the bankruptcy notice.
[54] The claim against her related to her failure to pay a deposit on an unconditional agreement for sale and purchase of the apartment, and it appears that the deposit was payable immediately. On the face of it, General Finance was entitled to sue for recovery of the deposit, and the Court of Appeal decision on Garratt v Ikeda, referred to by the District Court judge, makes it clear that later cancellation by the vendor (as happened in this case) does not preclude the vendor from recovering
the deposit.8
[55] The District Court judge addressed Ms DeNard’s arguments about the absence of a CCC, and rejected them. The argument that the failure of General Finance to obtain a CCC constituted an offence under s 362V of the Building Act
2004 was rejected by the judge, substantially on the basis that even if General Finance was a “commercial on-seller” to whom the section applied, the section could not apply in circumstances where there had been no settlement. The judge noted that if Ms DeNard’s argument were correct, every builder or other commercial on-seller who entered into an agreement to sell a property before building work had been completed (and therefore before a CCC had been issued) would be committing an offence. His Honour considered that that could not be correct. I agree, and see little
prospect of any appeal on the illegality point being successful.
8 Garratt v Ikeda [2002] 1 NZLR 577 (CA) at [9], [12], [13] and [15].
[56] Ms DeNard also wishes to challenge the decision on the basis of failure by General Finance to comply with the Consumer Guarantees Act. Again, I cannot see any reasonable prospect of that argument succeeding on appeal, even if the court were to allow Ms De Nard to run it (it appears not to have been argued before Judge Tuohy). The definition of “goods” in the Consumer Guarantees Act expressly
excludes “a whole building, or part of a whole building”,9 and I apprehend that the
contract for sale and purchase of the apartment in this case fell within the description “a whole building or part of a whole building”. Any claim would appear to be excluded on that basis. Additionally, Ms DeNard would need to establish that she was a “consumer” within the definition of the Consumer Guarantees Act, and that definition would have required that she had obtained relevant “goods” or accepted
relevant services.10 If the apartment did not qualify as “goods”, it is difficult to see
how the Consumer Guarantees Act could apply.
[57] Nor is it easy to see how Ms DeNard might establish breach of the Consumer Guarantees Act in circumstances where, from the point of cancellation, General Finance was no longer under any obligation to convey the apartment, with or without a CCC, to Ms DeNard.
[58] The proposed counterclaim appears to be dependent on General Finance having committed actionable breaches of the agreement for sale and purchase of the apartment, and on the information presently available to me, and for the reasons discussed above, the prospects of success with the counterclaim do not look strong. Nor has Ms DeNard filed any sworn evidence in support of her claims.
[59] Weighing the various considerations, I am not persuaded that there is a sufficient basis to halt the proceeding or further adjourn it. I accordingly make an order adjudicating Ms DeNard bankrupt. General Finance is entitled to costs, which
are fixed on a 2B basis, plus disbursements to be fixed by the Registrar.
9 Consumer Guarantees Act 1993, s 2, definition of “goods”.
10 Section 2, definitions of “consumer” and “acquire”.
[60] The foregoing orders are timed at 3.00pm on Wednesday 26 July 2017.
Associate Judge Smith
Solicitors:
Keegan Alexander Solicitors, Auckland for the judgment creditor
Drummond Law, Palmerston North for the judgment debtor
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