Haines v Memelink

[2020] NZHC 434

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2019-485-773

[2020] NZHC 434

UNDER

the Insolvency Act 2006

IN THE MATTER

of bankruptcy proceedings

BETWEEN

QUENTIN STOBART HAINES

Judgment Creditor

AND

HARRY MEMELINK

Judgment Debtor

Hearing:

25 February 2020

Appearances:

G Dewar for judgment creditor and BC 378945 (a supporting creditor)

D Livingstone for judgment debtor

A O’Connor for BC 68792 (a supporting creditor) C Matsis for BC 81012 (a supporting creditor)

Judgment:

9 March 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

This judgment was delivered by me on 9 March 2020 at 4.00 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

[1]                 The judgment debtor, Mr Harry Memelink, was adjudicated bankrupt by this Court on 28 August 2018.

HAINES v MEMELINK [2020] NZHC 434 [9 March 2020]

[2]                 The judgment creditor, Mr Quentin Haines, served a bankruptcy notice dated 19 December 2019 on Mr Memelink on 21 January 2020 demanding payment of

$5,508.00, that being the amount of a costs judgment of this Court dated 7 February 2020.1

[3]                 I am informed that Mr Haines (in relation to that costs judgment) and the supporting creditors, BC 68792, BC 81012 and BC 378945 (in relation to other debts), had sought to lodge proofs of debt with the Official Assignee with a view to having those debts (and possibly others) dealt with as part of his current bankruptcy, but that the Official Assignee declined to accept and deal with claims incurred after 28 August 2018.

[4]                 Accordingly, Mr Haines served his bankruptcy notice and has commenced this proceeding for a further order pursuant to s 11 of the Insolvency Act 2006 adjudicating Mr Memelink bankrupt.

[5]                 The idea of a bankrupt being bankrupted for a second time is a curious one — even counter intuitive — but is supported by logic and precedent — essentially, at least on the debit side of the ledger, the Official Assignee is charged with dealing with Mr Memelink’s bankrupt estate as at the date of his adjudication on 28 August 2018.

[6]                 There remains a question as to the utility of a second bankruptcy, but my views on that score are neither here nor there.

[7]                 Mr Haines’ application proceeds on the orthodox basis that Mr Memelink failed to comply with the bankruptcy notice served on him on 21 January 2020, thereby committing an act of bankruptcy.

[8]                 Mr Memelink opposes the making of the order sought, essentially on the basis that he has paid the amount of the demand, whilst at the same time acknowledging that he has not paid, or otherwise dealt with, Mr Haines’ claim in respect of costs.

1      Memelink v The Official Assignee [2020] NZHC 97.

[9]                 The obvious starting point is to determine whether Mr Memelink has committed an act of bankruptcy entitling Mr Haines to commence this proceeding.

[10]             In a bankruptcy proceeding the burden is on the judgment creditor to establish that the judgment debtor has committed an act of bankruptcy.

[11]             As already said, Mr Haines served his bankruptcy notice on Mr Memelink on 21 January 2020, so the 10 working day period for compliance with the same expired on 4 February 2020.

[12]             There was an immediate exchange between the parties and their advisers which suggests that both were looking to resolve matters.

[13]             Well before the expiry of the bankruptcy notice, Mr Memelink delivered to Mr Haines’ solicitor’s post office box a cheque for $5,508.00 drawn on an account of a trust by the name of “Link Trust No. 1” of which Mr Memelink was and is apparently one of two trustees.

[14]             I accept Mr Dewar’s submission that the proffering of a cheque cannot be treated as payment of a debt. It is well established that a cheque is not legal tender. Even a bank draft is not legal tender, although in certain contexts it may be treated as if it were.2 Accordingly, Mr Memelink’s proffering of a cheque is largely irrelevant to the question of whether or not Mr Haines can establish an act of bankruptcy to support his application. So too is the fact that for reasons explained by Mr Memelink in his affidavit evidence, the cheque here was ultimately dishonoured.

[15]             It is common ground that Mr Memelink later arranged to transfer the amount of the costs judgment — $5,508 — to Mr Haines bank account. An electronic transfer, in my view, is payment. Unlike a cheque, an electronic transfer cannot be “stopped”. Once such a transaction is effected, value has been transferred from transferor to transferee.

2      Williams v Gibbons [1994] 1 NZLR 273 (CA); Otago Station Estates Ltd v Parker [2005] NZLR 311 (CA); Otago Station Estates Ltd v Parker [2005] 2 NZLR 734 (SC); Dick Dees Ltd v Larsen [2006] 2 NZLR 765 (CA).

[16]             The issue in this case is whether the transfer of those funds at the behest of Mr Memelink to Mr Haines in payment of the amount of the costs judgment occurred within time.

[17]             It will be recalled that the bankruptcy notice was due to expire on 4 February 2020. Although it was not  put  to  me in  quite this  way,  I infer  from  aspects  of Mr Haines’ affidavit evidence and the submissions made on his behalf that his case proceeds on the basis that payment of a bankruptcy notice must be made within business hours, that is to say not after 5:00 pm on the last day. I can find no statutory or other authority to that effect. Certainly a judgment debtor applying for an order setting aside a bankruptcy notice on the last working day needs to  do  so  before 5:00 pm, but that simply reflects the practical reality that the Registry closes at that time. Otherwise — and quite surprisingly — I can find no authority on the point. In my view, the position is straightforward. The Insolvency Act  and  pt  24  of  the High Court Rules 2016 that govern bankruptcy proceedings provide that a judgment debtor must comply with a bankruptcy notice within 10 working days. He or she has the full 10 working days within which to do so. At a time when most financial transactions are conducted electronically, the courts should not in my view truncate that 10 working day period by insisting that the judgment debt be paid by 5.00 pm on the last of those 10 working days.

[18]             Here, the evidence as to the precise timing of the payment is not conclusive. In his affidavit of 5 February 2020, Mr Haines says that, in the knowledge that the bankruptcy notice expired on 4 February 2020, he “checked [his] bank account at 5:01 pm (just after the close of business). I had not received any funds. Attached hereto and marked “K” is a screenshot of my bank account at 5:01 pm”. In the next paragraph he goes on to say that at “12:05 am on 5 February 2020, I checked my bank account again. The sum of $5,508 had been deposited by the Link Trust No. 1. Attached hereto and marked “L” is a copy of the screenshot of my bank account at 12:05 am”. Accordingly, Mr Haines’ evidence is that the payment was made at some time between 5:01 pm on 4 and 12:01 am on 5 February 2020. Mr Haines’ screenshot of his account as at 12:05 am suggests that it was made on 4 February 2020, that is to say before midnight, and it appears to me to be overwhelmingly likely that the payment was made on 4 February 2020.

[19]             In my view, that means that Mr Haines has not established that Mr Memelink paid after the expiry of the bankruptcy notice.

[20]             That, however, does not resolve matters because it leaves the question of the costs claimed by Mr Haines in the bankruptcy notice — $828. As to this, Mr Haines’ case is that, because Mr Memelink did not either pay the amount of costs sought or apply to the Court to fix costs, he nevertheless committed an act of bankruptcy at midnight on 4 February 2020.

[21]             That submission seems unanswerable. The form of a bankruptcy notice is dictated by r 24.8(3) and Form B2 of the High Court Rules, which provides:

Costs

If you do not dispute the claim for costs, you must, within 10 working days, pay the costs claimed to the judgment creditor, either in person or at the address for service of the judgment creditor (or the solicitor for the judgment creditor), unless—

(a)the amount claimed has been secured or has become the subject of a new formal agreement to the judgment creditor’s satisfaction or to the satisfaction of the High Court; or

(b)the amount of any counterclaim, set-off, or cross-demand that you advance is sufficient to cover the costs claimed as well as the amount specified in paragraph 1(a).

If you dispute the claim for costs, you must, within 10 working days, apply to the High Court to fix costs.

If you do not pay the costs claimed or dispute the claim for costs, you will commit an act of bankruptcy for which you may be adjudicated bankrupt.

[22]             It is common ground that Mr Memelink took neither of the steps there outlined. In my judgement, it follows that Mr Haines has established that Mr Memelink committed an act of bankruptcy at midnight on 4 February 2020.

[23]             In terms of s 11 of the Insolvency Act the Court always has a residual discretion as to whether or not to make an order adjudicating a party bankrupt, and it is necessary to turn to the factors relevant to the exercise of that discretion.

[24]             Before doing so, I pause to mention a curiosity of this case, by no means unique, but certainly unusual. Mr Haines’ application for an order adjudicating

Mr Memelink bankrupt which was filed the day after the expiry of the 10 working day period on 5 February 2020 does not rely on the judgment debt for $5,508 on which his bankruptcy notice was founded. Rather, it relies on an altogether different debt being a costs judgment of $4,933 made in Mr Haines’ favour against the trustees of the Link Trust No. 1 — Mr Memelink being one of these — by Grice J on 20 May 2019 in another proceeding.3

[25]             There can be no objection to that. Section 13 of the Insolvency Act says that a creditor may apply for an order adjudicating a debtor bankrupt where the debtor owes the creditor $1,000 or more and the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application. The only requirement of a debt capable of founding such an application is that it is for “a certain amount” and “payable either immediately or at a date in the future that is certain”. So, the debt only need be for a liquidated amount which is payable to the judgment creditor by the judgment debtor, and need not be a judgment debt. In this case of course, as it happens, Mr Haines’ application is based on a judgment debt.

[26]I now turn to the exercise of the discretion.

[27]             The factors weighing against an  order  in  this  case  include  the  fact  that Mr Memelink has paid the amount originally claimed in the bankruptcy notice (albeit without dealing with costs), and that Mr Memelink continues to maintain, despite the order made bankrupting him in mid-2018, and the magnitude of the claims made in this proceeding, particularly those of the supporting creditors (which amount to several hundred thousand dollars), that he is able to pay his debts.

[28]             On Mr Memelink’s behalf, Mr Livingstone contended that a factor that should also be weighed in the balance in considering whether or not to make an order is a recent costs judgment of Grice J in yet another proceeding in favour of the trustees of the Link No. 1 Trust against Mr  Haines  which  exceeds  the  amount claimed  by Mr Haines in this proceeding.

3      Haines v Memelink [2019] NZHC 1086.

[29]             The contention that this costs judgment is relevant is resisted by Mr Haines. In his synopsis of submissions, Mr Haines’ solicitor, Mr Dallas, put the argument this way:

On 17 February 2020 her Honour Justice Grice released a costs decision in CIV-2018-485-962 ordering costs in favour of the Link No. 1, the trust associated with Mr Memelink. It is respectfully submitted that these costs are not an obligation owed by Mr Haines to Mr Memelink but are instead an obligation that Mr Haines owes to the Link Trust No. 1 and cannot therefore be argued as a set off.

[30]             I am assuming that what Mr Dallas meant by that submission is that any entitlement arising out of that costs judgment is one enjoyed by the trustees of the Link Trust No. 1 in their capacities as trustees, rather than in their personal capacities.

[31]             Whilst it is difficult to see how far Mr Dallas can go with that contention, because the legal owner of a chose in action is entitled to enforce it, albeit on behalf of the beneficial owner, there is a point here. The chose in action arising from Grice J’s judgment (or at least Mr Memelink’s  interest  in  it)  is  the  property  of  the  Official Assignee by reason of Mr Memelink’s status as a bankrupt.

[32]             The apparent asymmetry in this — Mr Memelink being liable on Grice J’s costs judgment of 20 May 2019 on which Mr Haines’ application in this proceeding is primarily based, but not being entitled to take advantage of her Honour’s 17 February 2020 judgment — is essentially a function of the operation of pt 2 of the Insolvency Act.4

[33]As against the points in [27] it is necessary to have regard to the following:

(a)Mr Memelink has committed an act of bankruptcy;

(b)In the ordinary course of events that entitles his creditors to the protection afforded by the Insolvency Act;

(c)There are at least four creditors who collectively are pursuing large claims; and

4      See in particular ss 76(1) and 101–102.

(d)The need to protect the public and have his affairs properly investigated on the Court’s behalf by the Official Assignee as an officer of the Court.

[34]             On balance the conclusion I have reached is that the applicant in this case,  Mr Haines, is entitled to the order he seeks.

[35]             I make an order adjudicating Mr Memelink bankrupt pursuant to s 11 of the Insolvency Act 2006. That order will come into force at the time and on the date noted by the Registrar on the front page of this judgment.

[36]             I did not hear counsel in relation to costs and I reserve these. However, my preliminary view is that the applicant and all three supporting creditors are entitled to their costs on a 2B basis. If, with the benefit of that preliminary view, counsel are unable to finalise costs, then they may revert to me by memorandum in the usual way.

Associate Judge Johnston

Solicitors:

J D Dallas, Wellington for judgment creditor D Livingston, Wellington for judgment debtor

Iorns Legal, Porirua for BC 68792 (a supporting creditor)
Gault Mitchell Law, Wellington for BC 81012 (a supporting creditor)