Harrison v Harrison
[2015] NZHC 1054
•12 May 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000496 [2015] NZHC 1054
IN THE MATTER OF the Insolvency Act 2006 AND
IN THE MATTER OF
of the bankruptcy of PAULINE JANICE HARRISON
BETWEEN
GRAEME ROSS HARRISON AND ADRIENNE HARRISON
Judgment Creditors
AND
PAULINE JANICE HARRISON Judgment Creditor now Bankrupt
Hearing:
(in Court)
12 May 2015 Appearances:
S J Shamy for Judgment Creditors
P J Harrison (Bankrupt) in person, with A J Harrison as McKenzie Friend
(G Slevin for Official Assignee, excused)
Judgment:
12 May 2015
(ORAL) JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on suspension of bankruptcy and advertising
HARRISON v HARRISON [2015] NZHC 1054 [12 May 2015]
Introduction
[1] Pauline Harrison, on 24 February 2015, was adjudicated bankrupt on the application of Graeme and Adrienne Harrison (the creditors).
[2] Ms Harrison now applies for orders suspending her adjudication and preventing the advertisement of the adjudication pending an appeal.
The judgment debt
[3] Ms Harrison is a judgment debtor by reason of a judgment which the creditors obtained in the High Court on 1 March 2013.1 Ms Harrison, in that proceeding (the Auckland Proceeding), is suing the creditors (as trustees of the Valerie Geard Family Trust) for breaches of trust. She asserts that the creditors have disregarded her “fixed final beneficiary interest”. She asserts that she was removed from an entitled position as beneficiary. In granting the creditors security for costs,
the Court ordered Ms Harrison to pay into Court the sum of $25,000 (the security sum) as security for costs. The Court, at the same time, dismissed an application by Ms Harrison for an order removing the creditors’ solicitor.
[4] Toogood J made two costs orders:
(a) first, Ms Harrison was ordered to pay the creditors’ costs on the
application for disqualification in the sum of $3,854; and
(b)secondly, Ms Harrison was ordered to pay the costs and disbursements of the security for costs application which were fixed at $2,500, with that sum to be paid out of the security sum.
[5] Ms Harrison did not satisfy the costs and disbursements orders. She did make a payment of a sum into the Auckland High Court by way of security but deducted from it the costs awarded on the security application.
[6] It was apparent then and has been repeatedly confirmed in documents since filed by Ms Harrison that she has no intention of paying any costs and disbursements awarded to the creditors. She takes the view that the creditors are not entitled to those payments because they have engaged in “deceitful and fraudulent conduct”. She also considers that the Court, in making the orders in favour of the creditors, has permitted its processes and the law to be used to permit the creditors’ frauds to continue. She stated in her written submissions:
I will not reward fraud in any shape or form including laundering under the pretext of costs.
[7] She repeated today in oral submissions:
I do not pay for a fraud.
[8] As a result of Ms Harrison’s failure to pay the full security sum, the Auckland
proceeding was and remains stayed.
[9] Ms Harrison did not, in 2013, appeal the security award, the dismissal of her application for removal of the solicitors, or the costs and disbursements orders.
[10] Ms Harrison herself obtained a costs order against the creditors in the sum of
$1,666 in another matter, (Ms Harrison’s costs judgment).
The bankruptcy notice
[11] On 23 July 2014, the creditors had a bankruptcy notice issued against Ms Harrison. The bankruptcy notice was for $5,102.32 and represented the costs of the Auckland proceeding together with interest and less the amount of Ms Harrison’s costs judgment.
[12] Ms Harrison did not meet the bankruptcy notice. In fact, she applied for an order setting aside the notice. The application was dismissed as a nullity because Ms Harrison had failed to meet the strict 10 working day limit in relation to service of the application upon the creditors.2
The adjudication
[13] Ms Harrison unsuccessfully opposed her adjudication.3 In terms of s 17
Insolvency Act 2006, her failure to comply with the bankruptcy notice had been an act of bankruptcy. I found that the requirements of s 13 Insolvency Act 2006 were met.
[14] Ms Harrison, by her grounds of opposition, had not asserted that she was solvent. Nor had she adduced evidence to rebut the presumption of insolvency. I rejected, as insufficient to amount to a ground of opposition, Ms Harrison’s bald assertion in her submissions that:4
I am not insolvent.
[15] In adjudicating Ms Harrison bankrupt, I rejected Ms Harrison’s grounds of
opposition as follows:
(a) Ulterior motive – Ms Harrison complained that the creditors were using the bankruptcy proceeding for the ulterior motive of “killing off” her Auckland Proceeding, such mala fides constituting an improper purpose and an abuse of process. I found that, with the High Court Rules providing for interlocutory orders to become immediately payable, the creditors were entitled to pursue the full range of
enforcement and bankruptcy proceedings as met their situation.5
(b)Corrupt and fraudulent behaviour – before me, as before Toogood J in the Auckland Proceeding, Ms Harrison had devoted a significant part of her submissions to the proposition that she is a vested final beneficiary of the Valerie Geard Trust and that her beneficial interest is being fraudulently and corruptly taken by the creditors (as trustees of that trust). I found that the adjudication proceeding was not an appropriate context in which to re-examine the merits of the Auckland
Proceeding. The merits had been assessed in that proceeding when
3 Harrison v Harrison [2015] NZHC 254.
4 At [37].
5 At [25].
directly in point on the security application and the Auckland judgment stood unappealed.6
(c) Conflict of interest – Ms Harrison had submitted (although not in her notice of opposition) that lawyers acting for or involved with the judgment creditors had conflicts of interest. Those matters had also been directly in issue in the interlocutory proceedings before Toogood J, who had found that there was no reasonable legal or evidential basis for the allegations upon which Ms Harrison based her application for removal of the lawyers. The dismissal of her application had not been
appealed. I found it inappropriate to revisit those matters.7
(d)Cross-claim – I noted that there might be a suggestion in Ms Harrison’s submissions that the Court should refuse to adjudicate Ms Harrison bankrupt because she has a cross-claim which exceeds the costs orders. I found that any such assertion failed as a ground of opposition for the same reasons as the second and third grounds which
I had examined.8
(e) Natural justice – Ms Harrison had submitted that there was a breach of natural justice in the way that Toogood J had heard from one of the judgment creditors in the absence of Ms Harrison. I found that there was no evidence to sustain Ms Harrison’s complaint as the Auckland judgment had been clearly been given “on the papers” with no
physical hearing at all.9
(f) Justice and equity – other aspects of Ms Harrison’s grounds of opposition identified concepts of equity and justice which fall for consideration under s 37(c) Insolvency Act 2006. But an examination of her submissions indicated that the concepts of justice and equity
were invoked in relation to the same grounds of opposition which I
6 At [29]–[32].
7 At [33]–[35].
8 At [36].
9 At [42].
had already reviewed and rejected. There were no residual matters to assist her.10
Ms Harrison appeals and makes this application
[16] On 24 March 2015, Ms Harrison filed in the Court of Appeal (within time) a notice of appeal against her adjudication.
[17] Ms Harrison has also filed in the Court of Appeal (because she is out of time to appeal the 1 March 2013 judgment as of right) an application for leave to appeal that judgment.
[18] Ms Harrison then filed in this Court an application for orders which is before me today:
(a) suspending her adjudication until the appeal is decided (s 416
Insolvency Act 2006); and
(b) an order that the Assignee must not advertise her adjudication (s 66
Insolvency Act).
Suspension of adjudication
The statutory provision
[19] By s 416 of the Act, it is relevantly provided:
416 Suspension of adjudication pending appeal
(1) If an appeal has been filed against an order of adjudication, the bankrupt or any other interested person may apply to the court or the Court of Appeal for an order suspending the adjudication until the appeal is decided.
(2) The court or Court of Appeal may suspend the adjudication on the conditions that it thinks appropriate, including conditions as to anything done or decided, or that ought to have been done or decided, by any person in the period between the adjudication and the order suspending adjudication.
10 At [43]–[44].
(3) …
The threshold requirement
[20] Mr Shamy, for the creditors, accepted that the threshold requirement (the filing of an appeal against adjudication) is met and that the Court has jurisdiction in this case to make the requested orders.
The discretion – nugatory appeals
[21] The judgment of the Court of Appeal in Lindsay v Vaucluse Holdings Ltd established two principles in relation to an application under what is now s 416 of the present Act:11
(a) A failure to suspend the adjudication of the bankrupt does not prevent the bankrupt from pursuing an appeal against the adjudication itself, thereby rendering appeal rights nugatory – the legislation expressly permits the bankrupt to pursue such an appeal.12
(b)The failure to suspend the adjudication of the bankrupt does not render nugatory the right to appeal the judgment which creates the judgment debt (on which the adjudication has occurred) – if that appeal has merit, the Assignee may pursue it in the name of the
bankrupt.13
[22] Mr Shamy correctly referred me to those principles, although Ms Harrison’s written submissions did not expressly pursue the points unsuccessfully pursued by the bankrupt in Lindsay v Vaucluse Holdings Ltd. As it is, the Court of Appeal’s judgment stands against any submission to the effect that the filing of Ms Harrison’s appeal (or her leave application) should lead inexorably to a suspension. The Court
of Appeal judgment establishes that it should not.
11 Lindsay v Vaucluse Holdings Ltd CA272/99, 13 December 1999. The provision at the time was s 9 Insolvency Act 1967.
12 At [4]. The right of appeal is expressly conferred upon the bankrupt by s 416(1) Insolvency Act.
13 At [5].
The broader discretion
[23] There remains for consideration what the Court of Appeal in Lindsay v Vaucluse Holdings Ltd described as “the wider and more conventional discretionary basis” of an application for suspension.14
[24] I find it useful, as did Ronald Young J in Kroon v Westpac Banking Corporation, and as I did in Re Parlane ex parte Young to consider the list of factors in relation to a stay of execution based on r 12 Court of Appeal (Civil) Rules 2005.15
These were identified by Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprise Ltd.16
[25] I will review those factors. In applying these authorities, I have not disregarded Ms Harrison’s submission to me this morning to the effect that the factors which are identified are irrelevant given the fraudulent conduct of creditors. But these authorities clearly do apply. Ms Harrison’s submissions turn on an assumption that her allegations have been established. The strength or otherwise of her case can come into play as one factor, but it is only one factor – the Court’s task remains to consider all factors which inform the justice of granting a suspension.
The factors governing suspension orders
Will refusal of suspension render the right of appeal nugatory?
[26] The right to appeal the adjudication judgment will not be rendered nugatory by a lack of suspension. Lindsay v Vaucluse Holdings Ltd applies.
The applicant’s bona fides as to the prosecution of the appeal
[27] There is a second appeal aspect to Ms Harrison’s application for suspension. Any suspension of the adjudication pending that appeal would be underpinned by Ms Harrison’s proposed appeal (for which she seeks leave) in relation to the 1 March
2013 judgment. The proposed appeal in relation to that judgment does not have the
14 At [6].
15 Kroon v Westpac Banking Corporation HC Auckland CIV-2006-404-4720, 15 May 2007 at [24];
Re Parlane ex parte Young CIV-2010-404-5478, 25 July 2011 at [33]–[34].
16 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprise Ltd (1999) 13 PRNZ 48 (HC).
hallmarks of a bona fides appeal. As indicated by Ronald Young J in Kroon v Westpac Banking Corporation, significant delay in the pursuit of an appeal (and I add, whether the delay is at the time of filing or in the subsequent pursuit of the appeal) detracts from a conclusion of bona fides.17 Ms Harrison’s two-year delay in seeking leave to appeal was gross. She applied for leave to appeal only after she was adjudicated bankrupt. There must be very serious doubt as to Ms Harrison’s bona
fides in relation to the proposed appeal of the Auckland judgment.
[28] The leave application, through its timing, appears more likely to be a step taken for strategic purposes rather than to correct a perceived error in the exercise of discretions by Toogood J in relation to security for costs and the award of costs and disbursements itself. Once the (proposed) underlying appeal is seen in that light, the fact that Ms Harrison may have had a sincere wish and determination to pursue an appeal in relation to the adjudication itself must count for less. Her bona fides in relation to that appeal remains a factor to be considered but significant weight cannot be attached to her determination.
Will the successful party be injuriously affected by the suspension?
[29] The Assignee cannot begin the process of accumulating any monies held by Ms Harrison or other assets in her estate, from which to meet her debt to these creditors (and any other creditors’ debts), so long as Ms Harrison remains in control of her assets, through a suspension of the adjudication.
[I interpolate here that Ms Harrison left the Court at this point indicating that she was not prepared to listen to any more.]
[30] A suspension will increase the likelihood that Ms Harrison’s assets will be depleted during the period of suspension as Ms Harrison puts at least some resources towards continuing litigation. Her tangible dislike of the creditors, which is evident in almost every document filed by Ms Harrison, raises the likelihood that she may have a distinct interest (following her adjudication), not in preserving the current extent of her assets for her creditors, but rather in reducing them so that the creditors
do not gain from what she identifies as their “diabolical, calculated lying, cheating and stealing”. As I have already quoted, her position is:18
I do not pay for a fraud.
Ms Harrison has consistently chosen not to put admissible evidence before the Court as to her means. The Court cannot be satisfied that Ms Harrison’s assets exceed her liabilities. But her own (unsworn) submissions as to an ability to meet debts suggests that there is a possibility that she has at least some cash assets which would fall within the Assignee’s administration if the adjudication is not suspended.
[31] I am satisfied that the creditors may well be injuriously affected by a suspension.
The effect on third parties
[32] The beneficiaries of the Valerie Geard Trust are third parties who will be affected so long as that trust does not recover the awarded costs and disbursements whether by direct payment or by some recovery through bankruptcy. The trustees have defended the Auckland Proceeding. Any costs and disbursements they recover will serve to recoup at least partially the costs they have incurred on behalf of the trust. Correspondingly, a lack of recovery leaves the trust pro tanto diminished. The impact on the beneficiaries of the trust should be taken into account.
The novelty and importance of the question
[33] There are no novel or important questions of law involved in the appeal.
Public interest in the proceeding
[34] To the extent that there is a predominant public interest relating to this proceeding, it is the public interest which lies in the prompt commencement of the Assignee’s investigation into the assets and liabilities of a bankrupt and the process of acquiring any assets. In her submissions this morning, Ms Harrison has referred briefly to the public interest in detecting and dealing with fraudulent behaviour. But
as a factor of public interest, this cannot assume great significance compared with the other factors in this case. Ms Harrison’s debt on which she was adjudicated bankrupt arose through a judgment which was regularly obtained and was not appealed at the time.
[35] I add at this point consideration of the strength of Ms Harrison’s appeal. I do so by particularly focusing on whether the appeal is without merit or lacks reasonable prospect of success. I adopt that test from my judgment in Walker v Castlereagh Properties Ltd.19
[36] On the facts of this case, Ms Harrison has not demonstrated that she has a reasonable prospect of success on the appeal against adjudication. She grossly delayed pursuing an appeal, and subsequently pursuing leave to appeal, against the underlying Auckland judgment. In that judgment, Toogood J upon review of Ms Harrison’s claims found them to be “wide-ranging, unfocussed, exaggerated and inherently implausible allegations” and “unsubstantiated allegations” which gave his
Honour no confidence that Ms Harrison had a meritorious claim.20
[37] It is unlikely, in my judgment, that leave to appeal the Auckland judgment so far out of time will be granted. An examination of Ms Harrison’s 21-page grounds of appeal in relation to the adjudication judgment indicates a central focus upon revisiting the merits of the allegations of fraud and other misconduct made against the creditors and their lawyers in the Auckland proceeding, in essentially the same unfocused manner as identified by Toogood J. Given the unlikelihood of leave being granted to pursue an appeal of the Auckland judgment, this central ground of appeal is unlikely to assist Ms Harrison.
[38] Other matters mentioned in Ms Harrison’s grounds of appeal, such as the proposition that the bankruptcy notice was “ultra vires” appear themselves to be dependent upon the central proposition that Ms Harrison has been a victim of fraud and deception as pleaded in the Auckland Proceeding. As Ms Harrison summarises
towards the end of her grounds of appeal:
19 Walker v Castlereagh Properties Ltd [2015] NZHC 907 at [27]–[32].
20 Valerie Geard Family Trust v Harrison, above n 1, at [31].
1.60 – it is not justice to award costs for acts of fraud and deception and oppress the innocent. Deceit is a tort and a crime.
The adjudication in bankruptcy flowed from Ms Harrison’s failure to meet a bankruptcy notice and the presumption of insolvency. Nothing in Ms Harrison’s grounds of opposition to the adjudication application made it just and equitable to refuse the creditors an order of adjudication.
[39] None of the matters raised by Ms Harrison provides a reasonable prospect of success on appeal.
The overall balance of convenience
[40] I now consider the overall balance of convenience. An entitlement (or fruit of judgment) which the creditors obtained on 1 March 2013 was the right to issue a bankruptcy notice and thereafter pursue Ms Harrison’s adjudication in bankruptcy. Ms Harrison did not appeal the costs judgment. She did not seek a stay of execution. She left the creditors free to issue their bankruptcy notice, which they did in July
2014. Through the duration of the bankruptcy proceeding, Ms Harrison chose to base her opposition on grounds which were ultimately unsuccessful. Only following her adjudication in bankruptcy has she elected to pursue an appeal against the costs judgment.
[41] Balance of convenience factors are overwhelmingly in favour of the creditors. They have adopted the correct procedures in issuing the bankruptcy notice and in obtaining an order of adjudication. Ms Harrison’s belated application for leave to appeal the 1 March 2013 judgment implicitly recognises her failure to attack the underlying judgment as a step which she should have taken if the bankruptcy proceeding were to be halted. Ms Harrison’s appeal from the adjudication order may still be pursued as of right. The leave to appeal the underlying Auckland judgment may be pursued by the Assignee if the Assignee considers that course appropriate. Those rights remain. In the meantime, the balance of convenience favours having the Assignee now commence the administration of Ms Harrison’s estate.
[42] Ms Harrison has criticised the Court’s case management of her application for suspension of the adjudication. She variously describes directions I have made as being “narrow-minded, arbitrary, disrespectful and unfair”. She says that she was given an unreasonable time-frame to prepare her submissions and other information. At the commencement of the hearing today, I gave a brief judgment in relation to a particular objection which Ms Harrison raised arising from the fact that the creditors’ notice of opposition had been filed on the morning of 30 April 2015 instead of 29
April 2015, as directed. I extended the time for the opposition by one day.
[43] An application for suspension of adjudication must by its nature be accorded some priority if not urgency. The relief sought has the effect of an interim injunction, restraining the Assignee from normal steps of administration. All parties affected are entitled to have the Court deal with the application in a prompt manner. The time from the making of this application to its hearing has been appropriate and reasonable. Ms Harrison’s application was filed some seven weeks after she was adjudicated bankrupt and some three weeks after she filed her notice of appeal against adjudication. The application is being heard some three weeks after it was filed. The Court has recognised the fact that Ms Harrison represents herself by not requiring her written submissions to be filed until four working days before the hearing. She has in fact filed lengthy, densely-typed submissions addressing the issues raised in her Notice of Application. Mr Shamy’s submissions were concise. He referred to the directions and the guidance set out in Lindsay v Vaucluse Holdings Ltd and in Kroon v Westpac Banking Corporation and essentially invited the Court to dismiss the applications through an application of the factors identified in Lindsay and Kroon’s cases.
[44] There is nothing to indicate that through further delay Ms Harrison could have added usefully to her written submissions. In fact, Ms Harrison rejected the possibility of a short adjournment when the Court offered it. As Ms Harrison’s submissions stand, they are extremely repetitive. It appears likely that additional time would have led to additional repetition. Any value to Ms Harrison through delay of the hearing (which I do not recognise) would in any event be outweighed by the additional costs which the creditors would incur through a delayed hearing and
by the public interest in having the administration of Ms Harrison’s insolvent estate,
once ordered, commenced promptly.
Application in relation to advertising
[45] Just as it is inappropriate to suspend the adjudication, it is inappropriate to order that the Assignee not advertise the adjudication.
[46] Ms Harrison did not address separate submissions on the issue of advertising. Her submissions as a whole appeared to indicate that, on both applications, she relies on the same circumstances and the same submissions.
[47] I have not been referred to any peculiar facts relating to Ms Harrison’s affairs which would justify a prohibition of advertising pending an outcome of an appeal. There has been, for instance, no evidence of the nature adduced in Re Parlane ex parte Young.21 In that case, the bankrupt adduced evidence that the reputation of companies with which he was associated would be affected by advertising of the adjudication, with a possible influence upon their business activities. In the event, I concluded in that case that it was not appropriate to suspend the adjudication. I equally considered it inappropriate on the facts to order a restraint on advertising. I adopt what I there said:22
Advertising is a very important function of the Assignee’s functions as it enables the Assignee to establish and satisfy [herself] as to the extent of creditors. There might be rare cases where the impact on others (possibly businesses, possibly close relatives) might call for a period of non- advertising.
[48] The evidence in this case raises no facts so special as to justify interference with the normal advertising requirement.
Costs
[49] Costs must follow the event.
21 Re Parlane ex parte Young, above n 15.
22 At [40].
[50] I would normally have heard from both parties at the conclusion of my judgment before I made orders. Because Ms Harrison has left the Court, I have been able to hear only from Mr Shamy. He has indicated that the creditors would ask for no more than 2B scale costs. Costs on at least a 2B basis are clearly justified. In the circumstances there will be such an award.
Orders
[51] I order:
(a) The applications of the bankrupt for orders suspending her adjudication and requiring the Assignee not to advertise the adjudication are dismissed.
The bankrupt is to pay, as an incident both of her personal estate and of her bankrupt estate, costs on a 2B basis together with disbursements to be fixed by the Registrar.
Associate Judge Osborne
Representation:
Birdsey & Associates, Auckland
Counsel: S J Shamy, Barrister, Christchurch.
Copy to: Ms P J Harrison, Christchurch – Judgment Debtor/Bankrupt. Copy to: Official Assignee.
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