Greenbaum v Lockwood

[2020] NZHC 18

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV 2019-419-273

[2020] NZHC 18

IN THE MATTER

of the Insolvency Act 2006

IN THE MATTER

of the Bankruptcy of BARBARA KAY LOCKWOOD

BETWEEN

ADAM RAPHAEL GREENBAUM

Judgment Creditor

AND

BARBARA KAY LOCKWOOD

Judgment Debtor

Hearing	16 December 2019
Counsel:	RG Ewen for the Judgment Creditor SRG Hamilton for the Judgment Debtor
Judgment :	17 January 2020

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by Sunaina Chand on 17 January 2020 at 2pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Counsel / Solicitors:

SRJ Hamilton, Auckland, [email protected] D Burgess, Auckland, [email protected]

RG Ewen, Auckland, [email protected]

Greenbaum v Lockwood [2020] NZHC 18 [17 January 2020]

[1]    In this case, the judgment debtor was served with a bankruptcy notice on Saturday, 26 October 2019. The amount said to be owing was $414,857.50 plus costs and interest. The judgment debtor filed an application to set aside the bankruptcy notice, with two supporting affidavits, on 12 November 2019.

[2]    On 27 November 2019 the judgment creditor filed a memorandum asking for a direction from the court that the application to set aside the bankruptcy notice was filed out of time and the court has no jurisdiction to hear the application. A memorandum in opposition was filed by the judgment debtor on 4 December 2019, and the judgment creditor filed a memorandum in reply on 10 December 2019. The judgment debtor filed a short sur-reply, also on 10 December 2019.

Background

[3]    The judgment creditor and the judgment debtor were formerly married. They met in 2000 when the judgment debtor was living and working in the United Kingdom, and they began living together later that year. They married in December 2006. They returned to live in New Zealand in 2009, and their relationship ended when they separated on 25 May 2011.

[4]    Following their separation, the parties have been involved in ongoing litigation in New Zealand under the Property (Relationships) Act 1976. There have also been spousal maintenance proceedings, and proceedings under the Care of Children Act 1991 relating to their children.

[5]    The property relationship proceeding was the subject of a judgment given by Judge Otene in the Family Court on 17 May 2018. The judge held that a substantial debt owed by the judgment creditor to his mother relating to a property in Ringmore Rise, London, was a relationship debt. On the basis that the judgment creditor would be responsible for discharging that debt, the judge ordered the judgment debtor to pay the judgment creditor $415,540.00, together with $17,500.00 for personal loans and a student loan that the judgment debtor had repaid from relationship funds.

[6]    The judgment debtor appealed the judgment of Judge Otene, but in a judgment delivered on 3 September 2019, Katz J largely upheld the judgment of Judge Otene.1 Katz J reduced the sum the judgment debtor was ordered to pay the judgment creditor to $397,357.50, plus the $17,500.00 for the personal loans and student debt repayments. Katz J ordered the judgment debtor to make the payments within 42 days of the date of the judgment.

[7]    The judgment debtor accepts that she has exhausted all remedies she may have in New Zealand in terms of the relationship property proceedings. The issue she wants to raise in opposition to the bankruptcy notice is a claim she believes she has in respect of the Ringmore Rise property in the United Kingdom, under the Matrimonial and Proceedings Act 1984 (UK). The judgment debtor says that she, the judgment creditor and their children resided in the Ringmore Rise property as their family home when they were living in London. She says that, as far as she is aware, the judgment creditor is still the owner of this property, and potentially owns other property in the United Kingdom.

[8]    The judgment debtor says that she will prosecute her claim in the English Courts as quickly as her circumstances will permit. She is prepared to abide by any reasonable conditions regarding the prosecution of her claim in the United Kingdom that the Court might impose in the event that it sets aside the bankruptcy notice. She says that the main thing she wants is recognition of what she believes to be her property rights in respect of the Ringmore Rise property. She is also concerned about her ability to provide for her children going forward, in terms of purchasing a house in New Zealand in which she can live with the children when they are with her.2 She also wishes to repay her debts to the judgment creditor, and accumulate funds for unforeseen circumstances she may encounter with the children.

[9]    The judgment debtor’s application was supported by an affidavit by Mr Lewis, a London barrister specialising in the field of family law. Broadly, Mr Lewis set out his view on the judgment debtor’s prospects of making a successful claim in the United

1      Penn v McQueen [2019] NZHC 2192, [2019] NZFLR 241.

2      The two children live with both parties under a shared custody arrangement, under which each parent has the children in alternate weeks.

Kingdom in respect of the Ringmore Road property. While Mr Lewis felt obliged to qualify his opinions in several respects, for present purposes I think it can be said that his views appear to be largely supportive of the judgment debtor’s belief that she has reasonable prospects of succeeding with an application for further provision from assets owned by the judgment creditor in the United Kingdom.

Relevant provisions of the Insolvency Act 2006 and the High Court Rules 2016

[10]Section 17 of the Insolvency Act 2006 (the Act) materially 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

…

(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.

[11]   It will be seen that, under s 17(4) of the Act, the judgment debtor was required to file and serve any application to set aside the bankruptcy notice within 10 working days after service. The authorities referred to by Mr Ewen is his first memorandum make it clear that the 10 day time limit cannot be extended by the Court.3

[12]   In ANZ Bank (NZ) Limited v Edwards, the court noted that an application to set aside a bankruptcy notice filed after the 10 working day period allowed after service is a nullity, and must be struck out.4

[13]Rule 24.10 of the High Court Rules 2016 provides:

24.10 Setting aside bankruptcy notice

(1)  If an application to set aside a bankruptcy notice cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the time is treated as extended until the application has been determined.

(2)  An act of bankruptcy is not committed by reason only of non-compliance with the notice until the application has been determined.

[14]   This rule cannot assist the judgment debtor. It only applies when the debtor has filed and served an application to set aside within the time allowed in the bankruptcy notice. Once the act of bankruptcy has occurred, the time for complying with the notice cannot be extended.5

The judgment debtor’s arguments on the “filed out of time” issue

[15]   Mr Hamilton mounted two arguments for the judgment debtor. First, he submitted that time did not start running against the judgment debtor until Wednesday, 30 October 2019. She was served on Saturday, 26 October 2019, and Monday 28 October 2019 was Labour Day, which did not count in the computation of the 10 working days. Mr Hamilton submitted that, as the judgment debtor was served with the bankruptcy notice on a day that was not a working day, service must be deemed to have taken place on the next working day, being Tuesday, 29 October 2019. On that

3      Prescott v Auckland Council [2017] NZHC 2698 at [20], AMG Nominees v Kelly [2017] NZHC 2725 at [5], Re Memelink Ex Parte SANCO (NZ) Ltd HC Wellington CIV-2008-485-2691, 10 March 2009, and ANZ Bank (NZ) Ltd v Edwards [2013] NZHC 2756 at [9].

4      ANZ Bank (NZ) Ltd v Edwards, above n.3, at [9].

5      Prescott v Auckland Council, above n.3 at [20]

interpretation, the first of the 10 working days would have been 30 October 2019, and the last day to file would have been 12 November 2019. The application was therefore in time.

[16]   Mr Hamilton’s second argument was that the judgment debtor should be permitted to amend her application to rely on the court’s inherent jurisdiction to set aside a bankruptcy notice. He submitted that such an application may be made at any time, regardless of whether the 10 working day period has elapsed. He submitted that the judgment debtor ought to be given the opportunity to amend her application to allow her to take advantage of the inherent jurisdiction.

[17]   On those bases, Mr Hamilton submitted that the application is not so clearly untenable that it has no prospect of success, and thus should not be struck out. He relied on broad principles relating to strike-out applications under r 15 of the High Court Rules, and on authorities such as the Supreme Court decision in Couch v Attorney-General. 6

The judgment debtor’s first argument – the application to set aside was filed in time

Submissions for the judgment debtor

[18]   Mr Hamilton correctly noted that this case raises the question of what should be the initial day of the 10 working day period where the person served is served on a day that is not a working day.

[19] Mr Hamilton noted that the Act does not include a definition of a “working day”, but s 29 of the Interpretation Act 1999 does. Section 29 of the Interpretation Act materially provides:

…

working day means a day of the week other than—

(a)   a Saturday, a Sunday, Waitangi Day, Good Friday, Easter Monday, Anzac Day, the Sovereign's birthday, and Labour Day;

…

6      Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.

[20] Mr Hamilton then referred to ss 35(2) and (6) of the Interpretation Act, which provide:

35 Time
…

(2) A period of time described as beginning from or after a specified day, act, or event does not include that day or the day of the act or event.

…

(6) A thing that, under an enactment, must or may be done on a particular day or within a limited period of time may, if that day or the last day of that period is not a working day, be done on the next working day.

[21]   Mr Hamilton submitted generally that court processes cannot take place on days that are not working days, whether that is at the beginning or the end of the prescribed period within which something must be done. He also submitted that there ought to be a disincentive in the law against serving people on weekends or before or after business hours.

Submissions for the judgment creditor

[22]   In reply, Mr Ewen referred to the judgment of Associate Judge Bell in Mitchell v Official Assignee. In that case, the Associate Judge dealt with the issue of whether the 10 working days prescribed by s 17(4) of the Act had expired when the creditor filed her application for adjudication.7 Service of the relevant bankruptcy notice was effected on a Sunday, and the Associate Judge clearly treated the first of the 10 working days as the following day. There was no suggestion that the service, effected on the weekend, should be deemed to have been effected on the following Monday.

My conclusion on the judgment debtor’s first argument

[23]   I accept Mr Ewen’s submissions on this point. The critical matter is that the judgment debtor was entitled to a period of 10 working days after she had received the bankruptcy notice to either comply with it or apply to set it aside, and there were in fact 10 working days between the date of service and 5pm on 11 November 2019. There is no statutory provision deeming service effected on a Saturday to have been effected on the next working day, and no compelling policy reason has been advanced to support that proposition. I agree with Associate Judge Bell’s apparent view in

7      Mitchell v Official Assignee [2017] NZHC 2686 at [5].

Mitchell that, where service of a bankruptcy notice is effected on the weekend, the following Monday (or the next working day if the Monday is not a working day) counts as the first of the 10 working days for the purposes of s 17(4) of the Act. On the authorities, it was too late to apply to set aside the bankruptcy notice (at least in reliance on a s 17 cross claim) on 12 November 2019, because an act of bankruptcy had already occurred by then. The three month period within which the judgment creditor could commence an adjudication proceeding based on failure to comply with the bankruptcy notice, was already running.8

The judgment debtor’s second argument – the Court can still set aside the bankruptcy notice in its inherent jurisdiction

[24]   Mr Hamilton submitted that the court could set aside the bankruptcy notice in the exercise of its inherent jurisdiction, even after the expiry of the 10 working day period prescribed by s 17(4). He relied on the judgments of Master Kennedy-Grant in Re Wise, ex parte Benecke,9 and Associate Judge Gendall in Omaha Properties Ltd v Kinsman.10

[25]   In Re Wise, Master Kennedy-Grant held that in certain circumstances the Court retains an inherent jurisdiction to set aside a bankruptcy notice, additional to the “cross-claim” ground provided at s 17(4) of the Act.11 The judgment debtors in that case did not wish to set up any cross-claim – they wanted to argue that they had not received proper notice of the hearing in the District Court at which the relevant judgment was entered against them. They contended that they had a defence to the creditor’s claim which they had not had the opportunity to put.

[26]   Master Kennedy-Grant was prepared to find in those circumstances that the Court has an inherent jurisdiction to control the abuse of its process, and that jurisdiction may be exercised:

8      Under s 16 of the Insolvency Act 2006, a debtor cannot be adjudicated bankrupt on a creditor’s application unless the debtor has committed an act of bankruptcy within the period of three months before the creditor files the application.

9      Re Wise, ex parte Benecke HC Auckland, B 227-228/95, 21 June 1995.

10     Omaha Properties Ltd v Kinsman HC Wellington, CIV 2009-485-656, 5 August 2009.

11     Re Wise, ex parte Benecke, above n.9, at 2.

(a)Where there has been a procedural defect in obtaining the judgment on which the bankruptcy notice is based; and/or

(b)Where there are arguable grounds of defence to the claim for which judgment was given.12

[27]   Master Kennedy-Grant declined to express a view on the appropriateness of the exercise of the power to order a stay on any wider grounds.13

[28]   It appears from the judgment in Re Wise that the debtors both filed affidavits in opposition to the bankruptcy notices, but it is not apparent from the judgment whether they did so outside the time then prescribed for applying to set aside the bankruptcy notices.

[29]   Omaha Properties Ltd v Kinsman was another case where the debtor contended that judgment had been entered following a hearing of which he had no notice.14 Again, I did not note anything in the case suggesting that an application to set aside a bankruptcy notice based on the court’s inherent jurisdiction (rather than the existence of a cross-claim within s 17(7) of the Act) need not be filed within the period of 10 working days prescribed in s 17(4).

[30]   The relevant bankruptcy notice in Omaha Properties Ltd was served on the debtor on 9 April 2009, and the debtor applied to set aside that notice. The debtor accepted that part of the debt was owed to the creditor, but contended that he had a defence in respect of the balance claimed (relying on payments made which were said not to have been taken into account in the creditor’s calculations).15 The result was that it was clear that the debtor might have a defence of $34,318.13, against an amount payable of $54,772.35. In those circumstances, counsel for Mr Kinsman invited the Court to exercise its inherent jurisdiction to control an abuse of the court’s process, referring to Re Wise.

12     Re Wise, ex parte Benecke, above n.9, at [6].

13 At [14].

14     Omaha Properties Ltd v Kinsman above n.10, at [5].

15 At [8].

[31]   On the facts in Omaha Properties Ltd, the Associate Judge found that the debtor had failed to establish a sufficient evidential foundation to show that the grounds he relied upon were genuinely arguable. The application to set aside the bankruptcy notice failed.16

My conclusion on the judgment debtor’s second argument

[32]   In this case, the judgment debtor is not relying on any procedural defect in obtaining the judgment on which the bankruptcy notice is based. Nor is she contending that the amount claimed is subject to a stay, or is otherwise not immediately payable under the judgment. She does not suggest that she did not have the ability to put forward all available arguments in the proceeding in which the judgment was obtained. In combination, those factors are sufficient to distinguish both Re Wise and Omaha Properties Ltd.

[33]   What the judgment creditor is contending is that she has an unresolved property relationship claim against the judgment creditor in the United Kingdom which, if successful, will be more than sufficient to offset the amount of the judgment creditor’s claim. She says this claim could not have been raised in the proceeding in which the judgment creditor obtained his judgment.

[34]   The argument on which the judgment debtor wishes the Court to exercise its inherent jurisdiction is, in fact, a s 17 cross claim argument. She contends she has a cross demand against the judgment creditor (the proposed claim in the United Kingdom courts relating to the Ringmore Rise property and any other property owned by the judgment creditor in the United Kingdom), and that she could not use that cross demand as a defence in the New Zealand proceeding because the New Zealand Courts had no jurisdiction to deal with claims in respect of property situated in the United Kingdom.

[35]   The case thus appears to raise directly the question of whether the inherent jurisdiction discussed in Re Wise and other cases can be exercised in circumstances

16     Omaha Properties Ltd v Kinsmen, above n.10, at [45].

where the alleged “abuse of process”, or unfairness, consists of no more than the judgment debtor’s inability to run a cross claim falling within s 17(7) of the Act.

[36]   I doubt that any inherent jurisdiction could exist that was inconsistent with s 17 of the Act. In that regard, I respectfully refer to and adopt the following view expressed by Associate Judge Osborne in Minter Ellison Rudd Watts v Hampton:17

A debtor’s reliance upon a cross-claim in response to a bankruptcy notice is specifically dealt with by s 17 of the Act. The effect of s 17(1)(d)(ii) (and the case law in relation to it) is that, notwithstanding that a debtor may wish to assert a cross-claim, the debtor is deemed to have committed an act of bankruptcy if he or she is unable to satisfy the Court that he or she has a genuinely triable cross-claim against the creditor (with the cross-claim meeting the requirements of s 17(1)(7)). I adopt with respect the reasoning of Associate Judge Faire in Saker v Blackler¹⁸ – as the Act provides the express ground for setting aside a bankruptcy notice, the concept of resorting to the inherent jurisdiction is contradicted.

I therefore do not consider that the inherent jurisdiction is available to assist the debtor in this case. Even had it been, the circumstances of this case in which Mr Hampton previously argued his cross-claim at the summary judgment hearing, does not fit within the concept of cases such as Re Wise where something may have gone wrong with the process by which judgment was obtained.

[37]   I note also that in Re Wise, Master Kennedy-Grant referred to the judgment of the Court of Appeal in the United Kingdom in Re A Debtor (30 of 1956), where the issue was whether or not a notice of motion to set aside a bankruptcy notice was out of time because it had not been filed within the three-day period prescribed under the Bankruptcy Rules 1952 (UK).19 Master Kennedy-Grant noted in that case both Danckwerts and Upjohn JJ took the view that the motion to set aside the bankruptcy notice was not required to be filed within the prescribed period “because the ground relied on (satisfaction of the debt) was not one of the grounds listed in the English Rules”.20

[38]   In the present case, the “ground relied on” appears to be precisely the ground listed in s 17(1)(d)(ii) and (7) of the Act.

17     Minter Ellison Rudd Watts v Hampton [2012] NZHC 1715 at [60]-[61].

18     Re Saker ex parte Blackler HC Wellington CIV-2008-485-000124, 26 May 2008 at [26].

19     Re A Debtor (30 of 1956) (1957) 2 All ER 216 (Ch.D.).

20     Re Wise exparte Benecke above n.9, at [13].

[39]   The result of those considerations is that I am not satisfied that the Court’s inherent jurisdiction would be available, even if it were possible to apply to set aside a bankruptcy notice outside the 10 working day period prescribed by s 17(4).

[40]   Even if those obstacles could be overcome, Mr Hamilton acknowledges that the judgment debtor would still need to amend her application to include reliance on the Court’s inherent jurisdiction. The problem with that is that an act of bankruptcy occurred immediately after the end of the 10 working day period, and amending the setting aside application could not reverse that act of bankruptcy. Additionally, no abuse of process or other grounds have been shown that might justify the Court acting in its inherent jurisdiction to set aside the bankruptcy notice. In such circumstances, I decline to allow the amendment sought by the judgment debtor.

[41]   For all of those reasons, I direct that the application to set aside the bankruptcy notice is a nullity. It is struck out accordingly.

[42]   For completeness, I add that nothing I have said in this judgment will affect the judgment debtor’s ability to raise her proposed English property claims in any bankruptcy adjudication proceeding the judgment creditor may now see fit to file (whether in opposition, or in support of any application she may wish to make for an order staying or halting the adjudication application). A broader range of considerations may be relevant if an adjudication proceeding is filed (and opposed by the judgment debtor), including whether it would be just and equitable to make an adjudication order.

[43]   I leave counsel to confer on the issue of costs. If the parties are unable to agree, the judgment creditor may file and serve a costs memorandum by 31 January 2020. Any reply memorandum by the judgment debtor is to be filed and served within 10 working days after service of the judgment creditor’s memorandum.21

Associate Judge Smith

21     Insolvency Act 2006, s 37(c)