Haines v Trustees of Link Trust (no.1)
[2021] NZHC 1575
•29 June 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-28
[2021] NZHC 1575
UNDER the Insolvency Act 2006 IN THE MATTER
of an application for an order pursuant to s 17 of the said Act setting aside a bankruptcy notice.
BETWEEN
QUENTIN STOBART HAINES
Judgment Debtor
AND
TRUSTEES OF LINK TRUST (No. 1)
Judgment Creditor
Hearing: 25 May 2021 Appearances:
J D Dallas for judgment debtor
D Livingston for judgment creditors
Judgment:
29 June 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] Mr Quentin Haines and another party were involved in litigation with the trustees of the Link Trust (No. 1) who, at the relevant time, were Mr Harry Memelink and Lynx Trustees Ltd, but who are now Mr Memelink and Ms Forster. The litigation concerned the enforcement of a mortgage security held by the trustees over a property owned or occupied by Mr Haines. The litigation concluded in early 2020. Grice J made a costs order in favour of the trustees against Mr Haines and the other party (jointly) in the total sum of $1,758.22.1 This was a net sum calculated having regard to costs entitlements of both parties.
1 Haines v Memelink [2020] NZHC 188.
HAINES v TRUSTEES OF LINK TRUST (No. 1) [2021] NZHC 1575 [29 June 2021]
[2] The trustees are now pursuing Mr Haines for the above amount. The intitulments that the parties’ solicitors and counsel have elected to use in this proceeding to date are confusing, not least because they have varied.
[3] No point was taken in relation to this by Mr Dallas or Mr Livingston, who both went straight to the substantive issues in the case, as I would expect them to do.
[4] However, it is appropriate to correct the record. The original judgment debt was entered against Mr Haines and the other party jointly in favour of the trustees of the Link Trust (No. 1) — then Mr Memelink and Lynx Trustees Ltd — and the judgment debt is enforceable by the current trustees against either or both of the original judgment debtors. So, the correct intituling of this proceeding in which the trustees are pursuing Mr Haines alone involves identifying Mr Haines as the judgment debtor and the current trustees as the judgment creditors. In this application, Mr Haines is the applicant and the current trustees are the respondents.
[5] At the request of the trustees this Court issued a bankruptcy notice addressed to Mr Haines on 10 February 2021. This was served on 12 February 2021. The bankruptcy notice was orthodox in its form, requiring Mr Haines to pay to the trustees the amount of the judgment debt, together with costs, make suitable arrangements with the trustees for payment or apply for an order setting aside the bankruptcy notice, in any event within ten working days.
[6] By application dated 23 March 2021, Mr Haines applied for an order setting aside the bankruptcy notice.
[7] The application sets out a number of grounds upon which Mr Haines invites the Court to set aside the bankruptcy notice, but, by the time the matter was argued, Mr Dallas had refined those arguments.
[8] The core provision of the Insolvency Act 2006 that is engaged by this application is s 17 which provides as follows:
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),—
complied with the requirements of the notice; or
(ii)satisfied the court that he or she has a cross claim against the creditor.
(2)The form that the bankruptcy notice must take is set out in section 29.
(3)The debtor must have been served with the bankruptcy notice in New Zealand, unless the court gave permission for the service of the notice on the debtor outside New Zealand.
(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.
(5)In this section, a creditor who has obtained a final judgment or a final order includes a person who is for the time being entitled to enforce a final judgment or final order.
(6)In this section, if a court has given permission for enforcing an arbitration award that the debtor pay money to the creditor,—
(a)final order includes the arbitration award; and
(b)proceedings includes the arbitration proceedings in which the award was made.
(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.
[9] The essential issue, then, as in all applications of this sort, is whether Mr Haines can bring himself within one or more of the grounds in s 17.
[10] On Mr Haines behalf, Mr Dallas advanced three submissions, which I would summarise as follows:
(a)first, that there is a flaw in the bankruptcy notice itself because it was sought and obtained from the Court and served on Mr Haines in circumstances where the judgment creditor did not have “standing to issue the bankruptcy notice or being entitled to enforce the judgment debt pursuant to s 17(5) of the Insolvency Act 2006”;
(b)second, that Mr Haines has a cross demand — or, rather, cross demands
— that exceed the amount of the bankruptcy notice;
(c)third, that Mr Haines has rendered an invoice to the trustees in respect of attendances during the period of time that the trustees engaged him as their solicitor for an amount exceeding the amount claimed against him which is currently the subject of a complaint by the trustees to the New Zealand Law Society.
Standing
[11] I accept the submission made on Mr Haines’ behalf by Mr Dallas that the bankruptcy notice was incorrectly intituled. That said the intituling certainly included the correct parties in the sense that it identified that the parties referred to as the judgment creditors were acting in their capacities as the trustees of the Link Trust (No. 1) and identified Mr Haines as the judgment debtor, albeit it that it did not identify the trustees correctly and unnecessarily referred to the joint judgment debtor.
[12] The evidence indicates that the necessary parties had authorised the service of the bankruptcy notice. Although it would appear that the liquidators of Lynx Trustees Ltd did not do so, that company is not a necessary party. The current trustees, Mr Memelink and Ms Forster, have both confirmed that they authorised this.
[13] In my view, there can be no real room for confusion. It would have been entirely apparent to Mr Haines on receipt of the document that it was a bankruptcy notice issued by the trustees of the Link Trust No. 1 and addressed to him as one of the joint judgment debtors. Indeed, it is clear that Mr Haines did appreciate this as he complied with the obligation to make this application within the statutory period. In short there is no question of any injustice as a result of the inaccurate intituling of the bankruptcy notice.
[14] In the context of this aspect of the argument Mr Dallas submitted that the trustees were barred from commencing or continuing any proceeding because effectively the trustees had changed, meaning that the respondents were different from those in the substantive proceeding in which the debt arose, and r 17.9 of the High Court Rules 2016 provides judgment creditors seeking to enforce a judgment through the processes provided for in that rule must seek leave to do so in the event that there is a change in the party after judgment is entered.
[15] In my view, r 17.9 has no application here. First, as Mr Livingston submitted, the service of a bankruptcy notice is not generally regarded as an enforcement process but rather independent proceedings. Second, the rule appears to me quite clearly to apply only to the enforcement mechanisms provided for in pt 17. Third, as I have already said, it is quite clear from the bankruptcy notice that it is issued for and on behalf of the trustees of the Link Trust (No. 1).
[16]This, in my view, is not a substantive point.
Mr Haines’ alleged cross claim(s)
[17]This appears to be the most important point.
[18] The affidavit evidence sworn in support and opposition was expressed in the most general of terms, and included broad assertions as to the net financial position between the parties. Inevitably, the state of this evidence reduced the precision of counsel’s submissions, which did not clarify matters greatly.
[19] One thing is quite clear. In assessing whether or not Mr Haines can establish an arguable cross claim or cross claims exceeding the amount of the bankruptcy notice, it is important not to lose sight of the critical point that, correctly understood, the bankruptcy notice is issued by the trustees of the Link Trust (No. 1) (Mr Memelink and Ms Forster) and addressed to Mr Haines. So it is irrelevant what the credit and debit position as between any of the other parties who feature in the evidence and submissions including Mr Memelink in his personal capacity, persons or entities who may formerly have been but are no longer trustees of the Link Trust (No. 1), Mr Haines’ joint debtor as a result of the judgment which stands behind the bankruptcy notice or any of the other Haines related interests that are referred to in the papers.
[20] What is equally clear is that although a watertight case is not required,2 a party on whom a bankruptcy notice is served and who moves to set the notice aside on the grounds that there is an arguable cross claim or cross claims needs to establish an evidential foundation for that assertion.
[21] Sharma v ANZ Banking Group remains the leading authority on setting aside bankruptcy notices.3 There, Cooke P accepted that a cross claim relied on in an application to set aside should be a genuine triable claim, and said:4
… the words 'genuine' and 'triable' require the debtor to demonstrate that he has a claim of true substance which he genuinely proposes to pursue.
[22]Materially, Mr Haines’ evidence was as follows: [sic]
6.The Link Trust No. 1 has in its own accounts filed in two separate proceedings in this Honourable Court, acknowledges a debt owed to me of $83,426.00. The affidavit of Joy Maree Rohloff is attached hereto and marked “C”.
7.The judgment creditor has been unsuccessful in other applications against me and my associated entities. Most of those applications are meritless insolvency applications of the type of the current bankruptcy notice. Costs remain unpaid in those various matters along with associate enforcement costs. Attached hereto and marked “D” is a copy of the insolvency report of the Official Assignee recording my costs as petitioning creditor in the second bankruptcy of
2 Re Jacomb, ex parte Wikeley [2013] NZHC 3034 at [26].
3 Sharma v ANZ Banking Group (1992) 6 PRNZ 386; Robertson v ASB Bank Ltd [2014] NZCA 597 at [19].
4 At 389.
Mr Memelink, attached hereto and marked “D” is a copy of those costs.
8.I am also owed the costs of issuing bankruptcy notices against Mr Memelink and Ms Forester for judgments ordered by this Honourable Court for matters where they were trustees of the judgment creditor. I have sought advice and have been advised that they are costs that are claimable against the indemnity of trustees against the judgment creditor.
9.There are also costs owed to me and my associated entities for the setting aside of several statutory demands inappropriately issued by the judgment creditor. Costs were awarded by His Honour Justice Churchman against Mr Bassett-Burr as a third party. This decision was overturned by the Court of Appeal. The matter has been sent back to the High Court for the further determination of costs. The costs originally awarded by His Honour were $22,919.25 being costs on a 2B basis with an uplift of 50%. Although on my application these costs were originally ordered only for the benefit of my associated entities, I will take advice on whether an application for costs to me personally is appropriate given the High Court will have to determine them again. It should be noted that leave has been sought to appeal the Court of Appeal decision to the Supreme Court.
10.Mr Memelink on behalf of the judgment creditor has admitting the judgment creditor owes me legal fees as recorded in our email correspondence. Attached hereto and marked “E” is a copy of that email correspondence. These fees have never been paid.
11.The judgment creditor has filed new proceedings against me for loans they purport to have taken assignment of. In a recent call of this matter Her Honour Justice Ellis has directed that my counter claim is to be filed by 22 February 2021. The quantum of the counter claim will vastly exceed the sum claimed in this bankruptcy notice.
[23] In paragraph 6 Mr Haines refers to an affidavit sworn by Ms Joy Rohloff in other proceedings. In her affidavit Ms Rohloff confirms that she is an accountant and in that capacity was engaged by the trustees of the Link Trust (No. 1) and that she has prepared and produces a draft of the trust’s financial statements for the year ending 31 March 2020.
[24] The balance sheet set out in the draft accounts includes a heading “Other non-current assets”. Under this there are line items that appear to reflect loans to entities (in fact there are three which are loans to the trustees of the “QSH Family Trust”, which I take to be a trust associated with Mr Haines). However, included amongst these “other non-current assets” is a line item entitled “Advance – Q. Haines (JL Trust A/c)” and the amount involved is said to be “($83,426)” (unchanged from
the previous year ending 31 March 2019). This amount is shown in parenthesis which suggests that it is not an asset at all but a liability, that is to say that the trustees of the Link Trust (No. 1) owe that amount to someone — presumably Mr Haines. There is, later in the balance sheet, a heading “Other non-current liabilities” so quite why this apparent debt appears amongst the non-current assets is a mystery. Neither Mr Haines nor Mr Memelink in their affidavits offer any explanation for this curiosity. Nor did counsel address the point.
[25]In any event, these are draft financial statements are now out of date.
[26] In the absence of any further explanation, or, more to the point, any further evidence, I am not prepared to accept that this establishes that Mr Haines has a currently enforceable claim against the trustees of the Link Trust (No. 1) for the amount in question.
[27] In paragraph 7 Mr Haines makes some very general observations about the trustees having made other applications against him “and … associated entities”. He says these are meritless and had given rise to claims to costs. To that point, paragraph 7 is too general in its nature to allow the Court to reach any conclusion. He goes on, however, in the same paragraph, to refer to costs to which he is apparently entitled in his capacity as a petitioning creditor in bankruptcy proceedings which resulted in Mr Memelink being bankrupted for a second time. He exhibits to his affidavit a copy of the Official Assignee’s report which records the Court as having made a costs award in his favour in the sum of $3,346.00. There are two points here. First, my judgment bankrupting Mr Memelink for a second time was the subject of an appeal and overturned by the Court of Appeal.5 There can be no certainty that when the matter is again dealt with in this Court a costs award will be made in Mr Haines’ favour. Second, in any event, any such costs award would be against Mr Memelink in his personal capacity as opposed to the trustees of the Link Trust (No. 1) making it irrelevant in the present context.
[28] In paragraph 8 Mr Haines talks about being “owed the costs of issuing bankruptcy notices against Mr Memelink and Ms Forster for judgments ordered by
5 Memelink v Haines [2021] NZCA 116.
this Honourable Court for matters where they were trustees of the judgment creditor. I have sought advice and have been advised that they are costs that are claimable against the indemnity of trustees against the judgment creditor”. I have some difficulty understanding that passage. However, if what Mr Haines is saying is that he has a claim against the current trustees of the Link Trust (No. 1), his description of it is too general to allow the Court to make any determination.
[29] Then, in paragraph 9, Mr Haines talks about other costs that he says that he “and associated entities” are entitled to claim in respect of setting aside other statutory demands which he says have been served by the trustees. He talks in particular about a costs award made by Churchman J against Mr Roy Basset-Burr who was also, at one time, a trustee of the Link Trust (No. 1). As he says, however, that judgment too was the subject of appeal and overturned by the Court of Appeal. There is nothing in this paragraph which would allow the Court to conclude that Mr Haines has an arguable cross claim against the trustees of the Link Trust (No. 1).
[30] In paragraph 10 Mr Haines says that on behalf of the trustees Mr Memelink has admitted that they owe him fees. In relation to this he exhibits to his affidavit some email correspondence. It is true that in this email correspondence Mr Memelink appears to be saying in more than one place that at least he, and perhaps the trustees of the Link Trust (No. 1), owe Mr Haines fees for professional services. No amounts however are mentioned and the language used is again so general that I do not perceive that the Court can be expected to rely on it to conclude that an amount exceeding the amount of the statutory demand claimable and capable of being set off against that judgment debt.
[31] In paragraph 11 Mr Haines says that the trustees have commenced new proceedings against him for the recovery of loan amounts that have been assigned to them by third parties. Mr Haines says that he has a counterclaim in that proceeding which “will vastly exceed the sum claimed in this bankruptcy notice”. However, again, this general and unparticularised assertion is not something that this Court could use to conclude that Mr Haines has a cross claim against the trustees of a nature that would enable it to be set off against the trustees’ claim.
[32] I am unpersuaded on the evidence that Mr Haines has an arguable cross claim for an amount exceeding the amount of the trustees’ judgment debt capable of being set off against that judgment debt.
Disciplinary proceedings
[33] The Lawyers and Conveyancers Act 2006 provides that lawyers may not enforce the payment of fee notes whilst they remain the subject of challenge in the form of complaint proceedings.6
[34] As explained in other proceedings, and touched on in the affidavit evidence here, Mr Haines rendered a fee note to the trustees of the Link Trust (No. 1) in respect of attendances in the sum of $1m. The trustees have complained to the New Zealand Law Society and challenged the fee. The complaint is still before the New Zealand Law Society. Until such time as that process is complete, Mr Haines will be unable to enforce his fee note (or any part). It may be that the probability is that at the end of that exercise the trustees may owe Mr Haines something. But that is no basis for an application to halt this proceeding.
Conclusion
[35] Mr Haines has not persuaded me on any basis that there are proper grounds under s 17 of the Insolvency Act to set the bankruptcy notice served by the trustees on him aside and his application is dismissed accordingly.
[36] Costs are reserved. My preliminary view is that costs should follow the event in the usual way and be calculated on a 2B basis. However, as I have not heard from counsel in relation to this I reserve costs. I would expect counsel to be able to sort these out without further involvement of the Court. However, if that proves
6 Section 161 states that here a complaint has been made under s 132(2) about the amount of a bill of costs rendered by a practitioner, no proceedings for the recovery of the amount of the bill may be commenced or proceeded with until after the complaint has been finally disposed of.
impossible, counsel may file memoranda in the usual way.
Associate Judge Johnston
Solicitors:
J D Dallas, Wellington for judgment debtor
Livingston & Livingston, Wellington for judgment creditor
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