GRAEME SMITH trading as GS Electrical and Fire Services Judgment Creditor AND BRIAN DAVID WADMAN Judgment Debtor

[2023] NZHC 3085

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2020-419-000259

[2023] NZHC 3085

BETWEEN

GRAEME SMITH trading as GS Electrical and Fire Services

Judgment Creditor

AND

BRIAN DAVID WADMAN

Judgment Debtor

Hearing:	On the papers
Appearances:	A M Swan for the Judgment Creditor T J P Bowler for the Judgment Debtor
Judgment:	1 November 2023

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 1 November 2023 at 4.15 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

Auckland Property Legal Services, Auckland Neilsons Lawyers, Auckland

A M Swan, Auckland

SMITH v WADMAN [2023] NZHC 3085 [1 November 2023]

Introduction

[1]    The judgment creditor, Graham Smith, applies for an order adjudicating the judgment debtor, Brian Wadman, bankrupt under s 36 of the Insolvency Act 2006 (the Act). The judgment debt is $11,026.42. Mr Smith also has a costs order in his favour of $5,684.50, and another costs order in his favour pending from this Court.

[2]    Mr Wadman opposes the application on the basis that he is able to pay his debts as they fall due, notwithstanding that he is choosing not to pay the judgment debt.

Background

[3]    Mr Smith provides electrical and fire services. The judgment debt relates to services provided by Mr Smith on a Waiheke Island property owned by Niall Kelly. Mr Wadman says that Mr Kelly is responsible for the debt, not him.

[4]    Mr Smith obtained a judgment by default in the District Court at Auckland against Mr Wadman for the debt, sealed on 15 June 2021. Mr Wadman was unsuccessful in setting the judgment debt aside, and subsequently abandoned an appeal.

[5]    On 24 November 2021, Mr Wadman was served with a bankruptcy notice requiring payment of the judgment debt. Mr Wadman did not comply with the bankruptcy notice, therefore committing an act of bankruptcy.

[6]    On 23 June 2022, Mr Wadman was served with the application for an adjudication order. The application for adjudication has been adjourned numerous times to allow for the determination of Mr Wadman’s application to set aside the judgment. Despite the failure of his efforts to set aside the judgment, Mr Wadman continues to deny liability for the debt.

[7]    Mr Wadman filed an updating affidavit dated 23 June 2023, which produces the record of title for 16 properties that are registered in the sole name of Mr Wadman. The records of title confirm that two of the properties have no mortgages registered

against them, and the remainder have one registered mortgage granted to a major trading bank. Mr Wadman avers that he has significant equity in the properties.

[8]    Counsel  for  Mr  Wadman  has  filed   a   memorandum   confirming   that Mr Wadman’s solicitors, Neilsons Lawyers, are holding the sum of $29,977.83 for Mr Wadman as trustee of the Treble David Trust. No details regarding the trust have been provided.

[9]Mr Wadman has provided no evidence of:

(a)whether the properties are owned by the Treble David Trust;

(b)the value of his personal assets and liabilities; and

(c)his personal income or outgoings.

[10]In reply, Mr Smith filed affidavits from three other creditors of Mr Wadman:

(a)Hannah Semmens produced a copy of a decision of the Tenancy Tribunal, ordering Mr Wadman to pay her $5,270.44. Further orders were made by the Tribunal regarding work to a rental property, including a compensation  payment  if  work  was  not  completed.  Ms Semmens confirmed that the judgment debt is outstanding.

(b)Colin Woods produced a copy of a decision of the Tenancy Tribunal, ordering Mr Wadman to pay him $3,910.44. Mr Woods confirmed that

$3,210 of the judgment debt is outstanding.

(c)Grant Young produced a copy of a decision of the District Court, ordering Mr Wadman to pay him $18,050. Mr Young confirmed that the judgment debt is outstanding.

[11]Mr Wadman had failed to disclose any of these judgment debts.

Legal principles

[12]Section 36 of the Act provides:

36Court may adjudicate debtor bankrupt

The court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.

[13]   Section 13 requires that the debtor owes the creditor a debt for a certain amount of $1,000 or more, payable immediately or at a date in the future that is certain, and that the debtor has committed an act of bankruptcy within a period of three months before the filing of the application for an order for adjudication.

[14]Mr Smith has met the jurisdictional requirements of ss 13 and 36 of the Act.

[15]   Section 37 of the Act confers a discretion on the Court to decline to make an order for adjudication:

37Court 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.

[16]   The following general principles, extracted from the case law, are relevant to the Court’s discretion to refuse adjudication:

(a)The onus is on the debtor to show why an adjudication order should not be made.1

1      McHardy v Wilkins & Davies Marinas Ltd (in rec) CA 54/93, 7 April 1993 at 3.

(b)In exercising its discretion, the Court may consider, inter alia, the following factors:

(i)the views of all affected parties, including the petitioner, other creditors and the debtor;2

(ii)the wider public interest, including whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;3

(iii)the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursing adjudication;4

(iv)whether adjudication would be pointless in the sense that the creditors are unlikely to receive payment;5 and

(v)whether adjudication would render the debtor unable to support him or herself.6

(c)In exercising its discretion, the Court should also remain cognisant of the broader purposes of bankruptcy which include:

(i)allowing for administration of the debtor’s estate in the interests of creditors;

(ii)holding the debtor accountable for his or her debts;

(iii)punishing or stigmatising the debtor for misconduct;

2      Re Sturdee [1985] 2 NZLR 627 (HC) at 635.

3      Re Nisbett, ex parte Vala [1934] GLR 553 (SC) at 556.

4      Re Epirosa, ex parte Diners Club (NZ) Ltd HC Wellington B498/91, 6 March 1992 at 6.

5      Re Fidow [1989] 2 NZLR 431 (HC) at 444.

6      Re Epirosa, above n 4, at 7.

(iv)protecting the community from a debtor who runs up credit without being able to honour it; and

(v)allowing the debtor to eventually take up commercial activity once freed from his or her liabilities after the discharge of their bankruptcy.7

(d)Ultimately, the Court must balance the various considerations relevant to an application when concluding whether the debtor has succeeded in showing that the order sought should not be made.8

[17]   Where there is evidence that a debtor is able to pay their debts, and payment can be obtained by execution against the assets of the debtor, an order of adjudication is unlikely.9 It is not enough for a creditor to establish that a debtor is unwilling to pay a debt, rather than unable to do so. It is not enough to point to some nuisance arising from the need to issue an execution process.

[18]   Relevantly, s 38 of the Act confers a discretion on the Court to halt an application for adjudication:

38Court may halt application

(1)The court may at any time halt the creditor’s application for adjudication.

(2)The court may halt the application on the terms and conditions (if any), and for the period, that the court thinks appropriate.

[19]   The discretion in s 38 is intended to be flexible, by its very wording it does not call for the formulation of fixed rules applicable to the exercise of the discretion.10 A condition to a halting order may include payment of outstanding debts not subject to further challenge.11

7      Sheppard v Blanchett [2012] NZHC 789, (2012) 3 NZTR 22-014 at [35]–[43].

8      McHardy v Wilkins & Davies Marinas Ltd (in rec), above n 1, at 4.

9      Lawson v Perkins [2009] NZFLR 330 (HC) at [20].

10     Bank of New Zealand v Koroniadis [2013] NZHC 2865 at [11].

11     See Body Corporate 68792 v Memelink [2016] NZHC 2658.

Discussion

[20]   It is not possible to determine Mr Wadman’s financial position on the limited information he has elected to put before the Court. His relationship to the Treble David Trust is not explained, but he appears to be a trustee. The deed of trust has not been produced.

[21]   Similarly, there is no evidence confirming that Mr Wadman is beneficially entitled to the funds held in the solicitor’s trust account for the Treble David Trust, although that has been implied. In any event, the funds are insufficient to discharge the four known judgment debts, which total $43,241.36.

[22]   The Court cannot safely conclude that Mr Wadman is able to pay his debts, particularly given the existence of four known judgment debts that are unsatisfied.

[23]   Mr Smith is prima facie entitled to an order of adjudication, and Mr Wadman has failed to discharge the onus on him to show why an adjudication order should not be made.

[24]   However, I consider that this is an appropriate case for Mr Wadman to be given a final opportunity to pay his debts, if he is able to do so, by halting the application for adjudication on the condition that the debts are promptly paid.

[25]   This proceeding was commenced because Mr Wadman has failed to accept his responsibility to pay a judgment debt entered against him, and which he has been unable to successfully set aside. Mr Smith has successfully established the grounds for the making of an order for adjudication, which Mr Wadman has avoided, for the time being, on an exercise of the Court’s discretion. Mr Smith is the successful party and he is entitled to costs on this proceeding on a 2B basis, plus disbursements.

Result

[26]   The creditor’s application for adjudication is halted on the condition that the judgment debtor pay the following debts in full by 5 pm on 24 November 2023:

(a)The judgment debt of $11,026.42 in favour of Mr Smith, together with the costs order in his favour of $5,684.50, and the pending costs orders of this Court. The pending costs orders of this Court will be confirmed in a minute which I will issue after counsel for Mr Smith files a memorandum setting out the costs ordered by this Court on the abandonment of Mr Wadman’s appeal, and the costs sought in this proceeding. That memorandum shall be filed within two working days of delivery of this judgment.

(b)$5,270.44 in respect of the Tenancy  Tribunal  order  in  favour  of  Ms Semmens.

(c)$3,210 in respect of the Tenancy Tribunal order in favour of Mr Woods.

(d)$18,050 in respect  of  the  District  Court  judgment  in  favour  of  Mr Young.

[27]   The proceeding is adjourned to the bankruptcy list on 27 November 2023 at 10 am for review. Mr Wadman shall provide evidence of the payment of the debts to satisfy the condition.

Associate Judge Brittain