Goodwin v Copland
[2014] NZCA 568
•27 November 2014 at 3.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA195/2013 [2014] NZCA 568 |
| BETWEEN | WAYNE ERNEST GOODWIN |
| AND | BRIAN STEWART COPLAND |
| Hearing: | 10 November 2014 |
Court: | Wild, Simon France and Asher JJ |
Counsel: | A C Beck for Appellant |
Judgment: | 27 November 2014 at 3.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant is to pay the respondent’s costs as for a standard appeal on a band A basis with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Wild J)
Introduction and issues
On 28 March 2013, in the High Court at Dunedin, Associate Judge Matthews adjudicated Mr Goodwin bankrupt.[1]
[1]Goodwin v Copland [2013] NZHC 652 [judgment under appeal].
The six grounds on which Mr Goodwin appeals against that adjudication can be distilled to three:
(a)Substituted service: Did the Associate Judge err in holding there is jurisdiction to order substituted service of a bankruptcy notice?
(b)Act of bankruptcy: Was there error on the Associate Judge’s part in holding Mr Goodwin had committed an act of bankruptcy in terms of s 17(1) of the Insolvency Act 2006 (the Act), in that he had not complied, within the time limit specified, with a bankruptcy notice served on him?
(c)Discretion not to bankrupt: The Associate Judge declined to exercise the discretion s 37 of the Insolvency Act gave him not to adjudicate Mr Goodwin bankrupt. Was this an error? The primary point here is Mr Goodwin’s assertion that he had a cross claim against Mr Copland exceeding the amount stated in the bankruptcy notice.
Background
On 1 May 2006 the parties together with Mr Goodwin’s company Corporate Capital Investment Co Ltd signed a memorandum settling a proceeding Mr Copland had brought in the High Court at Dunedin. In terms of the memorandum Mr Goodwin was to pay Mr Copland NZD30,000 by 31 August 2006 and USD465,000 by 29 September 2006.
On 11 October 2006, following default by Mr Goodwin in making either payment, the Court entered judgment upon an admission of claim held by Mr Copland under the settlement agreement.[2]
[2]Copland v Goodwin HC Dunedin CIV-2004-412-346, 11 October 2006.
On 23 July 2012 Mr Copland applied to the Court for the issue of a bankruptcy notice. He also applied ex parte for an order for substituted service of the notice and of any subsequent bankruptcy application.
Pursuant to orders made by the Court on 28 July 2012,[3] the bankruptcy notice was served on 31 July 2012 at the offices of Ross Dowling Marquet Griffin, solicitors in Dunedin, for the attention of Mr Alastair Logan. Mr Logan was a solicitor acting at the time for Mr Goodwin in another proceeding and his firm’s office was Mr Goodwin’s address for service in that proceeding.
[3]Goodwin v Copland HC Dunedin CIV-2012-412-519, 28 July 2012 (order for substituted service).
On 15 August 2012 Mr Copland applied for an order adjudicating Mr Goodwin bankrupt based on his failure to comply with the bankruptcy notice (that is, his failure by 15 August 2012 to pay either of the NZD or USD debts), thus committing an available act of bankruptcy. That application was served on Mr Logan on 21 August 2012, pursuant to the order for substituted service.
On 5 October 2012 Mr Goodwin filed a notice of his intention to oppose the application for adjudication because there was an application pending before the Court to set aside the 2006 judgment on which the application for adjudication was based. That application had been filed by Mr Goodwin in May 2012. It was the second such application Mr Goodwin had filed. We elaborate in [9](d) below.
That second application to set aside the judgment was heard on 6 November 2012 and dismissed in a judgment Associate Judge Osborne delivered on 30 November 2012.[4] These background matters are recorded in the judgment:
[4]Copland v Goodwin [2012] NZHC 3211.
(a)In June 2010 Associate Judge Faire had dismissed a first application to set aside the 2006 judgment, filed by Mr Goodwin in March 2010 on the ground Mr Copland was in breach of a term of the settlement agreement requiring him to remove, from a website, a reference to Mr Goodwin.[5] In terms of r 15.16(5) of the High Court Rules, Associate Judge Faire held the relevant time for assessing conduct in relation to the entry of judgment is at the time of entry of judgment. He accepted Mr Copland’s evidence that the impugned reference was no longer on the website on the day judgment was entered. That judgment was not appealed.
(b)In that judgment Associate Judge Faire had also declined an invitation from Mr Goodwin’s counsel to set aside the judgment in the Court’s inherent jurisdiction, holding there was no justification for doing that. If Mr Copland was in breach of the settlement agreement, Mr Goodwin’s remedy was to bring a proceeding for breach of contract.
(c)On 30 April 2012 Mr Goodwin’s solicitors had advised Mr Copland’s solicitors Mr Goodwin had cancelled the 2006 settlement agreement. That had drawn an immediate response from Mr Copland’s solicitors, denying any breach and advising that any proceeding or application would be resisted.
(d)In May 2012 Mr Goodwin had applied unsuccessfully to stay execution of an unopposed summary judgment ordering the sale of a property he owned at Te Anau, and had also filed his second application to set aside the 2006 judgment, ultimately determined by Associate Judge Osborne in his 30 November 2012 judgment. After hearing some argument on that application to set aside the judgment, Gendall J had adjourned it, observing in the process that the application was “very tenuous, to say the least, and unlikely to succeed”.[6] Gendall J had heard and dismissed the stay application, concluding:[7]
I am satisfied by a wide margin that this attempt is a collateral last-gasp attack on the entry of judgment on the same basis that was asserted and failed before Associate Judge Faire.
(e)Mr Copland had received two payments, NZD88,250 and NZD109,584 from the sale of two properties owned by Mr Goodwin, and applied them to that part of the judgment debt expressed in USD. At 1 July 2012 that left balances owing under the 2006 judgment, with interest, of USD518,227.34 and NZD42,943.56.
(f)As Mr Goodwin sought to rely on events post entry of judgment, he must invoke the Court’s inherent jurisdiction.
[5]Copland v Goodwin HC Dunedin CIV-2004-412-346, 11 June 2010.
[6]Copland v Goodwin [2012] NZHC 996 at [13].
[7]At [15].
Against that background, Associate Judge Osborne considered the fundamental objection to the Court exercising its jurisdiction to set aside the judgment was the fact:[8]
[50] … The Court’s record indicates in the clearest terms that liability and quantum were not to be revisited if the settlement agreement stalled. That is precisely what counsel assured the Court, as recorded by Hansen J in his minute of 1 May 2006.[9]
[51] … while it may remain open for Mr Goodwin to say that the removal requirement was important, or indeed very important to him, the parties agreed through the assurance which counsel gave to the Court on 1 May 2006 that none of the other terms of the settlement was as important as Mr Copland’s undeniable right to judgment as to liability for the agreed quantum.
[52] Any claim which Mr Goodwin might have (and I give Mr Goodwin no encouragement in this regard), would lie only through a claim for damages for breach of the settlement agreement.
[8]Copland v Goodwin, above n 4.
[9]That minute read: “Counsel assured the Court that there will be no questions arising as to liability and quantum if the settlement agreement stalls”.
Associate Judge Osborne concluded there was no room to justify a conclusion that justice required the setting aside of the 2006 judgment and dismissed Mr Goodwin’s application.[10]
[10]At [60]–[61].
Meanwhile, Mr Copland’s application to have Mr Goodwin adjudicated bankrupt was adjourned several times. On 8 February 2013, shortly before one of the adjournment call dates, Mr Goodwin, with different solicitors and counsel, filed an amended notice of opposition substituting, essentially, the grounds advanced on this appeal. Thus, Mr Goodwin did not for a third time seek to rely on alleged breach of the settlement agreement giving rise to the judgment debt. Instead he relied on non-service of the bankruptcy notice and his alleged counterclaim.
Ground 1: No jurisdiction to direct substituted service
Service is dealt with in pt 6 of the High Court Rules. Rule 6.1 stipulates the methods which may be used “for serving a document that is required by these rules to be served”. Rule 6.8 permits the Court to direct substituted service:
If reasonable efforts have been made to serve a document by a method permitted or required under these rules, and either the document has come to the knowledge of the person to be served or it cannot be promptly served …
Rule 6.8 then stipulates the types of direction which may be given.
Associate Judge Matthews held a bankruptcy notice is a document “required by these rules to be served” in terms of r 6.1, and that substituted service of a bankruptcy notice could therefore be directed under r 6.8.[11]
[11]Judgment under appeal, above n 1, at [26].
The Associate Judge then noted the following rule in pt 24 of the High Court Rules, entitled “Insolvency”:[12]
24.9 Service of bankruptcy notice in New Zealand
(1)A bankruptcy notice that is to be served in New Zealand must be served within 1 month from the date of its issue.
…
[12]As of 11 November 2013, r 24.9(1) was amended by substituting “6 months” for “1 month”.
The Associate Judge interpreted r 24.9(1) as stipulating both for service, and for service within one month of the date of issue of the notice. That was the Associate Judge’s route to the conclusions we have noted in [14] above.
Mr Beck took issue with this reasoning, arguing that the service requirement was in s 17(1)(c) of the Insolvency Act and need not be – and was not – duplicated in r 24.9. Section 17(1) 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),—
(i) complied with the requirements of the notice; or
(ii)satisfied the court that he or she has a cross claim against the creditor.
…
(4) The time limit referred to in subsection (1)(d) is,—
(a)if the debtor is served with the bankruptcy notice in New Zealand, 10 working days after service; or
(b)if the debtor is served outside New Zealand, the time specified in the order of the court permitting service outside New Zealand.
…
Mr Beck reinforced this argument by pointing out that the gap in the High Court Rules – no express requirement that a bankruptcy notice be served – has now been filled by the current r 24.9(4) inserted in 2013:
(4)A bankruptcy notice must be served in accordance with Part 6 (service).
We see no error in the Associate Judge’s reasoning. As Mr Beck accepted, his argument confined the requirement for service to s 17(1)(c) of the Insolvency Act, which also does not specify the permitted method or methods of service. Rather, s 17(1) and (4) provide that failure, within the stipulated time, to comply with a bankruptcy notice which has been served on the debtor is an act of bankruptcy.
We regard the insertion of the new r 24.9(4) as intended to make express what was always the position: that the s 17(1)(c) requirement for service is for service in accordance with the High Court Rules. The amendment foreclosed the scope for doubt and for the sort of argument Mr Beck has advanced.
Our view is in line with the approach taken by the High Court in Re Franck, ex parte Asteron Life Ltd.[13] There, after reviewing recent authorities on substituted service, Clifford J granted an order for substituted service of a bankruptcy notice by way of email.
Ground 2: No act of bankruptcy
[13]Re Franck, ex parte Asteron Life Ltd (2009) 19 PRNZ 446 (HC).
Although Associate Judge Matthews considered there was jurisdiction to direct substituted service of the bankruptcy notice, he accepted Mr Beck’s submission that he ought not to have directed substituted service here.[14] Mr Guest took issue with that view. He argued for a wider, more practical interpretation of the words in r 6.8 “reasonable efforts … to serve a document”. Obviously Mr Guest was constrained to accept that no attempt had been made personally to serve the bankruptcy notice on Mr Goodwin. But he argued that the evidence of past orders for substituted service, hearsay evidence that Mr Goodwin had been avoiding service, and evidence of previous difficulty in effecting service on Mr Goodwin at two residential addresses, together comprised a proper evidentiary basis for the order for substituted service.
[14]Judgment under appeal, above n 1, at [33].
We do not need to decide whether the order for substituted service was properly made here. Given the point is of considerable importance, and is arguable, we leave it for a case where it needs to be decided.
For present purposes, the point is the High Court did give a direction for substituted service of the bankruptcy notice and Mr Copland complied with it. That direction stood unless and until it was set aside, and it was never set aside.
We do not accept Mr Beck’s argument that the direction for substituted service should have been set aside ex debito justitiae[15] because it lacked the required evidentiary basis. In advancing that argument, Mr Beck relied on Singapore Airlines Ltd v Mistry.[16]In Mistry Associate Judge Smith set aside an order for summary judgment because, on the evidence, he was not satisfied that personal service of the application on Mr Mistry had been properly effected. Mistry, in turn, relied on In re a Debtor.[17] In that case the English Court of Appeal allowed an appeal on the basis there was no proof a bankruptcy petition had been properly personally served on the judgment debtor. Critical in both Mistry and In re a Debtor was that the “nature of the document” had not been brought to the mind of the person to be served. In both cases there was proof only of delivery of a sealed envelope containing the court document.
[15]As of right.
[16]Singapore Airlines Ltd v Mistry [2014] NZHC 1055.
[17]In re a Debtor [1939] 1 Ch 251 (CA).
Mistry and In re a Debtor are distinguishable, because it can be reasonably assumed the bankruptcy notice was brought to Mr Goodwin’s attention, just as it had been personally served on him. We say this for two reasons:
(a)At no stage has Mr Goodwin ever suggested the bankruptcy proceeding took him by surprise, or that he was prejudiced by a lack of notice of it. Mr Beck argued it was up to Mr Copland to prove the bankruptcy notice was actually brought to Mr Goodwin’s notice, given the s 17(1) and (4) consequences of not responding to the bankruptcy notice within 10 working days after service. We do not accept this. If Mr Goodwin knew nothing of the bankruptcy proceeding, he could easily have said so. Significantly, in both Mistry and In re a Debtor the Court had evidence from the judgment debtor that he was unaware that the relevant bankruptcy document had been served. So there is what might be termed a loud silence from Mr Goodwin in this respect.
(b)Substituted service of the bankruptcy notice was on 31 July and of the application for adjudication on 21 August 2012. Mr Goodwin filed his notice of intention to oppose the latter application on 5 October 2012. As detailed in [8] above, the basis for that application was that his May 2012 application to set aside the 2006 judgment had not yet been determined by the Court. Mr Goodwin did not oppose on the basis that he had not had the 10 working days after service allowed by s 17(4)(a) to comply with the bankruptcy notice. Nor did he oppose on the basis that he could and would have complied with the bankruptcy notice or advanced a cross claim against Mr Copland had he had 10 working days notice. Those were the two steps available to Mr Goodwin to avoid committing an act of bankruptcy in terms of s 17(1) and (4).
Given the s 17(1)(c) requirement for service of the bankruptcy notice was undoubtedly met here, we need not consider whether s 418 of the Act would cure a failure to meet that requirement. That section provides:
418 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.
…
Had consideration of s 418 been required, the issue would be whether the lack of an evidential foundation for the substituted service direction that was given and complied with was “a defect … in a step that must be taken as part of, or in connection with, the proceeding …”. It can be argued it is such a step, because the “proceeding” under the Act began when the bankruptcy notice was issued by the High Court at Dunedin. Giving s 418 a wide curative ambit is supported by this Court’s judgment in Best v Watson.[18] Dealing with the predecessor of s 418, the Court said:[19]
In our view the section has to be given its full meaning and is not to be read subject to any limitations not required by the statutory language. …
… [Section 418] 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 proceedings under the Act; and that question should not be approached in a mechanical or technical way.
[18]Best v Watson [1979] 2 NZLR 492 (CA).
[19]At 494. The predecessor of s 418 was s 11 of the Insolvency Act 1967:
Proceedings under this Act shall not be annulled or set aside by reason of any defect, misnomer, or inaccurate description, or of the omission, of anything required to be done in or concerning any such proceedings in any case where no person is injuriously affected thereby; and any Court having jurisdiction may, in any case where any such error or omission is made, direct the same to be rectified and may order the proceedings to be continued upon such terms as it thinks best in the interests of all concerned.
The defect in Best v Watson was that the creditor’s petition failed in two respects to comply with the Insolvency Rules 1970, for example because it omitted the required address for service.
Heath J’s judgment in Bridgecorp Ltd (In Rec and In Liq) v Nielsen provides further support for a wide application of s 418.[20] Heath J rejected an argument that the creditor’s application for adjudication was defective, and the proceeding a nullity, because the creditor failed to comply with requirements in s 14 of the Act as to the existence and value of a security. Against the event that he was wrong to dismiss that argument, Heath J considered s 418. He held the omission of the existence of a security occurred “in a step” that was required to be taken as part of the bankruptcy proceeding, with the result that s 418 applied to cure any defect.
[20]Bridgecorp Ltd (In Rec and In Liq) v Nielsen [2010] 1 NZLR 820 (HC) at [42]–[43].
The contrary argument is that a failure to comply with the service requirement in s 17(1)(c) meant Mr Goodwin had not committed an act of bankruptcy in terms of s 17, removing the very basis for the bankruptcy proceeding Mr Copland took.
Whatever the scope of s 418, we do not consider it could be used to establish an act of bankruptcy where none otherwise exists. Thus, if there was neither personal service nor substituted service in accordance with a direction, s 418 could not be used to save that situation. That would not be a defect in a step, but a failure to take a step at all. There would be nothing that s 418 could cure.
Again, the argument about the proper scope of s 418 has practical importance and is appropriately reserved for a proceeding in which it needs to be determined.
Ground 3: Discretion not to adjudicate bankrupt
Section 37 of the Act gave the Associate Judge a discretion to refuse to adjudicate Mr Goodwin bankrupt. The section provides:
37 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.
Mr Beck argued the Associate Judge erred in declining to exercise this discretion in Mr Goodwin’s favour. We reject that submission, which rests on three interrelated grounds. The first is Mr Goodwin’s claim that Mr Copland breached the settlement agreement which is the basis for the judgment debt. Mr Goodwin has put that argument unsuccessfully to two different Associate Judges in his successive applications to set aside the judgment. A third Judge, Gendall J, was dismissive of the merits of one of those applications to set aside. Associate Judge Matthews again analysed the claim and found it had no substance. The claim forms the third cause of action in the proceeding Mr Goodwin finally filed against Mr Copland on 25 February 2013. The pleading is that Mr Copland was required to cause the offending material to be deleted permanently from the website. As Associate Judge Matthews pointed out, that pleading is at odds with the wording of the settlement agreement and alleges a position Mr Copland “was powerless to maintain”.[21]
[21]Judgment under appeal, above n 1, at [47].
The second ground is that Mr Goodwin has now brought a proceeding against Mr Copland which might equal or exceed the amount of the judgment debt. We have already referred to the Associate Judge’s analysis of the third cause of action in that claim. The first cause of action alleges that Mr Copland is responsible for Mr Goodwin’s inability to raise credit and his alleged substantial difficulties in carrying on business. The Associate Judge pointed out that no particulars are given and that there is nothing which might translate into the claim for $100,000, even if proved. The second cause of action is for $530,000 in respect of the sale of Mr Goodwin’s Te Anau property pursuant to a court order obtained by Mr Copland unopposed by Mr Goodwin. Again, the Associate Judge took the view nothing is pleaded which might establish either liability or the amount claimed.
A further point about the cross claim is that Mr Goodwin only filed it six years after judgment was entered against him, and shortly after Mr Copland filed his application to have Mr Goodwin adjudicated bankrupt. That delay and timing is difficult to reconcile with a claim that has compelling merit. Rather, it strongly suggests a last ditch attempt to avert bankruptcy.
Third and last, Mr Beck argued that bankruptcy would likely mean Mr Goodwin’s cross claim was abandoned. He submitted “it is necessary for the Court to intervene in order to prevent a material injustice”. As Associate Judge Matthews noted, Mr Goodwin’s claim against Mr Copland would, upon adjudication, vest in the Official Assignee pursuant to s 64(1)(e). As he stated:[22]
… It would be for the Official Assignee to assess the claim and determine whether it should proceed. If it were to proceed the proceeds of the claim, if successful, would be an asset in the bankruptcy, distributable to creditors. If the sum recovered were greater than the debts proved in the bankruptcy, there may be grounds for the bankrupt to be discharged. All this shows that rather than being lost sight of, the claim would be independently assessed on its merits and the Official Assignee would make a decision on the steps to be taken.
[22]At [50].
For all those reasons, we see no error in the way the Associate Judge exercised his s 37 jurisdiction. Indeed, his decision was undoubtedly the correct one.
Result
The appeal is dismissed. The appellant is to pay the respondent’s costs as for a standard appeal on a band A basis with usual disbursements.
Solicitors:
Jenny Beck Law, Dunedin for Appellant
Downie Stewart Lawyers, Dunedin for Respondent
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