Harrison v Harrison
[2015] NZHC 254
•24 February 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000496 [2015] NZHC 254
IN THE MATTER of the Insolvency Act 2006 AND
IN THE MATTER OF
the bankruptcy of PAULINE JANICE HARRISON
BETWEEN
GRAEME ROSS HARRISON and ADRIENNE HARRISON Judgment Creditors
AND
PAULINE JANICE HARRISON Judgment Debtor
Hearing: 23 February 2015 Appearances:
S J Shamy for Judgment Creditors
P J Harrison (Judgment Debtor) in person withA J Harrison as McKenzie Friend (but judgment debtor not appearing on 24 February 2015)
Judgment:
24 February 2015
ORAL JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on adjudication application
Introduction
[1] The judgment creditors obtained a costs judgment against Miss Harrison on 1
March 2013.1 After giving credit to Miss Harrison for a sum of costs awarded to her in another proceeding, the judgment creditors had a bankruptcy notice issued in relation to a debt of $5,102.32.
[2] Miss Harrison committed an act of bankruptcy when she failed to comply with the bankruptcy notice. Yesterday, I formally dismissed her application to have
1 Valerie Geard Family Trust v Harrison [2013] NZHC 385.
HARRISON v HARRISON [2015] NZHC 254 [24 February 2015]
the bankruptcy notice set aside – the application being dismissed because Miss Harrison did not effect service of a copy of the application upon the judgment creditors within the required 10 working days.2
Miss Harrison’s opposition to adjudication application
[3] Miss Harrison’s initial opposition to the adjudication application was contained in a document entitled “Memorandum of Pauline Janice Harrison applying to stay/halt “Banco” List call on Thursday, 9 October 2014” (that date being the first hearing date of the application).
[4] The content of that initial document made it plain that Miss Harrison seeks a refusal of the application under s 37 of the Insolvency Act 2006 or an order halting the application under s 38 of the Insolvency Act.
[5] She subsequently filed on 8 October 2014 a Notice of Intention to oppose the adjudication application, adopting the form provided by the High Court Rules, but incorporating reliance on her earlier Memorandum.3
The Court’s jurisdiction
[6] Section 13 of the Insolvency Act 2006 provides for when a creditor may apply for a debtor’s adjudication. The requirements of s 13 are met in this case because –
(a) Miss Harrison owes the creditors $1,000 or more;
(b)Miss Harrison committed an act of bankruptcy within the period of three months before the filing of the application;
(c) The debt is a certain amount; and
(d) The debt is payable immediately.
2 Harrison v Harrison [2015] NZHC 244.
3 High Court Rules, Form B6, First Schedule.
[7] By s 36 of the Act the Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in s 13 (as has been done in this case).
[8] Section 37 of the Act provides further for the Court’s discretion. It provides:
37 Court 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.
[9] In Baker v Westpac Banking Corporation Richardson J (delivering the judgment of the Court of Appeal) described the principles governing the exercise of the discretion to grant or review an order of adjudication (under the equivalent provision in the old Insolvency Act) in these terms:4
It is proper for the Court to consider not only the interests of those directly involved – the petitioner, other creditors, the debtor – but also the wider public interest. A creditor who establishes the jurisdictional facts set out in s
23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The Court will
give proper weight to the commercial judgment of the petitioner but the
oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may by the undoubted absence of assets but that will not necessarily preclude an order given the range of interest involved including the public interest and the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the Court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
4 Baker v Westpac Banking Corporation CA212/92 13 July 1993, at p4.
Miss Harrison’s grounds of opposition
Ulterior motive
[10] In her initial memorandum filed, Miss Harrison made her objection to
adjudication under a heading “Ulterior motive”. In the document she explained:
The trustee alleged creditors and their lawyers are using the Court and Insolvency Act 2006 as instruments for their improper purpose to bring this action against me oppressively with mala fides ulterior motive to metaphorically “kill me off” in their bid to steal my Rights. I cite the Scriptures as an example which are resident in every Courtroom, which provides the renowned analogy of Jezebel and Ahab in 1 Kings ch 21 who similarly schemed to dishonestly take by diabolical unsconscionable [sic] stratagem what didn’t belong to them, namely the vineyard that belonged to Naboth.
(Emphasis as in Miss Harrison’s own document)
[11] Miss Harrison followed that passage in her memorandum by a lengthy quotation from Scripture. In the remaining 23 paragraphs of her memorandum she set out in more detail arguments which she pursues as to beneficial entitlements in the litigation in which she incurred the costs judgment. She asserts that the judgment debt is now being relied upon in this bankruptcy jurisdiction to defeat her equitable rights. Hence, the heading of “ulterior motive” in the memorandum – Miss Harrison centrally maintains that the bankruptcy proceeding is being pursued for the improper purpose of effectively bringing her claims to an end.
[12] In a sense, the formal notice of intention to oppose the application which Miss Harrison subsequently filed is an elaboration of the earlier memorandum, in that it identifies what are stated to be 10 grounds of opposition being:
i. The law of Equity;
ii. The Inherent duty, obligation and responsibility of the High Court to safeguard fixed final beneficiary interest;
iii. The fixed trusts in THE VALERIE GEARD TRUST DEED;
iv. Abuse of Court process and using the Statutes for improper purpose;
v. Oppression;
vi. The rule of law doctrine of clean hands;
vii. Non-compliance with High Court Insolvency Rules;
viii. The Law of Equity and my Rights recognised by the Rule of Law and section 99 of the Judicature Act 1908 (which was previously filed in the Court on 1 September 2014);
ix. My re-filed Application to Set Aside Bankruptcy Notice under rule
24.10 High Court Rules and section 99 Judicature Act 1908 (which was previously filed in the Court on 1 September 2014);
x.My urgent memorandum of Pauline Janice Harrison Applying to Stay/Halt ‘Banco’ List Call on Thursday 9 October 2014, filed in the High Court of (sic) Friday 3 October 2014;
The context
[13] The judgment which gives rise to the judgment debt on which the creditors proceed was an interlocutory judgment.5 Miss Harrison, in that proceeding, is suing the judgment creditors as trustees of a family trust (established by Miss Harrison’s since-deceased sister). She asserts in the substantive proceeding that the trustees (her brother and sister-in-law) have acted in breach of their obligations as trustees by keeping and using the trust’s property for their own benefit to the exclusion of Miss Harrison and another brother. The trustees (the judgment creditors in this proceeding) deny the allegations.
[14] Three interlocutory applications were filed in 2012, two of which gave rise to the costs judgment. First, there was an unsuccessful application by Miss Harrison for orders:
(a) removing the solicitor and counsel who were acting for the trustees;
and
(b) disqualifying Toogood J from presiding.
[15] Secondly, there was a successful application by the trustees for an order for security for costs against Miss Harrison. Toogood J provides the background in
relation to these applications in his Honour’s judgment of 1 March 2013.6 Toogood J
5 Valerie Geard Family Trust v Harrison, above n1.
6 At [7]–[11].
assessed costs on the failed disqualification application on a 2B basis, awarding the trustees $3,854.
[16] His Honour then considered the trustees’ security application. In doing so, he necessarily considered the merits of Miss Harrison’s substantive case. He found considerable force in Mr Parmenter’s submission that the plaintiff’s primary claim that the trustees should make a final distribution to her as a final beneficiary could not succeed, observing that even if the Court were to find a misuse of powers, the appropriate remedy would be to replace them and not to interfere in the exercise of
discretions plainly conferred by the Trust Deed.7
[17] His Honour went on to observe:8
The defendants’ careful and detailed response to the allegations of misfeasance are to be contrasted with the wide-ranging, unfocused, exaggerated and inherently implausible allegations made by the plaintiff. Unsubstantiated allegations of deceit and misleading conduct by the defendants and legal practitioners, and the attacks on judicial officers, which are contained in the plaintiff’s memorandum, give me no confidence that the plaintiff has a meritorious claim.
[18] His Honour awarded costs and disbursements on the security application of
$2,500 to be paid out of any sum paid by the plaintiff into Court by way of security.9
The costs regime – interlocutory costs
[19] It is the responsibility of parties to civil litigation in the High Court to understand the rules which apply to them. Rule 14.8 of the High Court Rules contains specific rules in relation to costs on interlocutory applications, providing relevantly:
14.8 Costs on interlocutory applications
(1) Costs on an opposed interlocutory application, unless there are special reasons to the contrary,—
7 At [29].
8 At [31].
9 At the hearing, I was informed by Mr Shamy from the Bar that Miss Harrison has apparently elected since March 2013 to pay into Court all but $2,500 of the sum of security ordered. The shortfall of payment appears (from Miss Harrison’s submissions) to have arisen because she is not prepared to include within the payment made the costs and disbursements she has been ordered to pay.
(a) must be fixed in accordance with these rules when the application is determined; and
(b) become payable when they are fixed.
(2) Despite subclause (1), the court may reverse, discharge, or vary an order for costs on an interlocutory application if satisfied subsequently that the original order should not have been made.
(3) …
[20] Plainly, it is not of itself abusive for the successful party on an interlocutory application to issue a bankruptcy notice for unpaid costs given that the High Court Rules themselves provide that the costs are payable when fixed. In this case, the judgment debts remain unpaid almost 12 months after they were fixed.
[21] In the course of her submissions (although not relied upon in her notice of opposition) Miss Harrison referred me to r 14.7 of the High Court Rules which permits the Court in certain circumstances to refuse costs for what might be described as the “disentitling” conduct of an otherwise successful party. The considerations under r 14.7 are not in play in this proceeding. The time for assessment of those considerations and the fixing of appropriate costs was when Toogood J gave judgment in March 2014.
Absence of appeal or stay
[22] Miss Harrison did not seek to have reviewed or appeal the costs judgment. Nor has that judgment been stayed for any other reason.
Miss Harrison’s grounds of opposition – discussion
Ulterior motive
[23] Miss Harrison perceives that the judgment creditors are pursuing bankruptcy for the ulterior motive of “killing off” her trust litigation. She says therefore the bankruptcy proceeding is being used for an improper purpose and constitutes an abuse of process.
[24] Miss Harrison relies on a passage in Laws of New Zealand in which the author summarises the principles in relation to the misuse of bankruptcy proceedings as a ground of refusal of an adjudication order in this way:10
The Court will not permit a creditor to use the bankruptcy process for extraneous purposes so as to put pressure on a debt to pay. If the Court is satisfied that a creditor’s application for bankruptcy has been brought for an ulterior purpose, the Court may dismiss the application in the exercise of its discretion, so as to prevent an abuse of its processes. Where the creditor seeks to extort a payment greater than his or her debt, this constitutes an abuse of the Court’s process, and the creditor will be disqualified from using bankruptcy proceedings.
(footnotes omitted)
[25] In this case, there is no doubt that the judgment creditors made their application with the intention of bankrupting Miss Harrison if she did not meet the demand. I accept that it is unrealistic to expect that the judgment creditors did not thereby hope that one outcome of bankruptcy would be that the trust litigation would come to a final end (rather than simply being stayed as it now is). But for them to see such a side benefit of adjudication does not of itself amount to the impropriety of purpose that should cut across a creditor’s general entitlement to pursue the adjudication of an insolvent. With the High Court Rules providing for interlocutory costs orders to become immediately payable, those litigants who thereby become liable are susceptible to the full range of enforcement and bankruptcy proceedings as meet their situation.
[26] There will be cases where a creditor sits on his or her rights in relation to a costs order only to initiate bankruptcy proceedings just as the substantive proceeding is coming to its hearing. In such a case, the Court may exercise its discretion not to make an adjudication order precisely because there is a degree of abuse in the approach the creditor has taken. Such an approach is not warranted in this case, where the substantive proceeding has been stayed for almost a year through Miss Harrison’s failure to pay the full sum of security. The litigation is accordingly dormant. There is nothing inappropriate about the timing of the judgment creditors’
adjudication application.
10 Laws of New Zealand Personal Bankruptcy and Insolvency (Reissue 1) at [120].
[27] As matters stand there is no basis upon which the Court could conclude that this proceeding is being pursued for improper purposes.
Corrupt and fraudulent behaviour
[28] A significant part of Miss Harrison’s submissions, as was the case in her submissions to Toogood J, was devoted to the proposition that she is a vested final beneficiary of the trust and that her beneficial interests are being fraudulently and corruptly taken by the trustees.
[29] There is little room for examination of the merits of Miss Harrison’s claim in this context. The merits of her claim were examined by Toogood J and found to be lacking, before the Court made the security order (partly on that basis) and proceeded to award costs. Miss Harrison did not appeal that judgment. It is not appropriate in this interlocutory context to re-examine the merits – they were assessed in an earlier interlocutory context when directly in point. The judgment stands unappealed. The debt justifies bankruptcy proceedings.
[30] In addition to the focus on allegations of trustee fraud leading to her substantive proceeding, Miss Harrison referred me to authority which deals with another aspect of fraud. She referred me to the judgment of Associate Judge Bell in Fava v Official Assignee.11 His Honour noted a decision of the High Court of Australia Petrie v Redmond in which Latham CJ said:12
The Court (ie the Court of Bankruptcy) is entitled to go behind the judgment and enquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice … Also the Court looks with suspicion on consent judgments and default judgments.
[31] The authorities, of which Petrie v Redmond is an example, are generally concerned not with a substantive fraud allegation on which a particular civil proceeding may be based. Rather they focus on the way in which a particular judgment (especially where it is a consent or a default judgment) has been obtained (for instance through the fraud or collusion in the way the substantive judgment was
obtained by the parties or counsel involved or through a miscarriage of justice).
11 Fava v Official Assignee [2012] NZHC 2980.
12 Petrie v Redmond (1942) 13 ABC 48 at 49, (1943) QSR 75 at 76.
[32] In this case, the interlocutory issues were resolved upon interlocutory applications, evidence and submissions, with a judgment then regularly given. Apart from a late suggestion by Miss Harrison in her submissions (as to a breach of natural justice in the hearing which I come to below, and dismiss) no suggestion was made that the interlocutory judgments themselves were obtained by fraud, similar misconduct or miscarriage of justice.
Conflict of interest
[33] Miss Harrison, in her submissions (although not in her notice of opposition), sought to attack the bankruptcy proceeding also upon the basis that lawyers acting for or involved with the judgment creditors have conflicts of interest. These matters again were directly in issue in the interlocutory proceedings before Toogood J. His Honour found that there was no reasonable legal or evidential basis for the allegations on which Miss Harrison based her application for disqualification of the
lawyers.13 His Honour therefore dismissed that application before awarding costs.
[34] Miss Harrison similarly developed submissions on an alleged conflict of interest on the part of Toogood J. This was a direct issue in the interlocutory proceedings and again ruled upon by Toogood J.
[35] These grounds of opposition sit in the same category as Miss Harrison’s invitation to the Court to revisit the merits of her substantive proceeding. She did not appeal the outcome and it is inappropriate to revisit those matters.
Cross-claim
[36] There may be a suggestion in Miss Harrison’s submissions, as noted by Mr Shamy, that the Court should refuse to adjudicate Miss Harrison bankrupt as she asserts a cross-claim which exceeds the costs orders. However the assertion of any cross-claim proceeds on precisely the same basis as Miss Harrison’s invitation to the Court to consider the trustees’ “corrupt and fraudulent conduct”, which for the
reasons I have stated is not an appropriate subject for re-litigation.
13 Valerie Geard Family Trust v Harrison, above n 1, at [21].
Solvency
[37] Miss Harrison’s submissions contained at one point the bald assertion:
I am not insolvent.
[38] In her written submissions, she refers to being precluded by her conscience from rewarding people who have misled her and deceived the Court. In other words, Miss Harrison in her submissions is asserting that her failure to pay costs involves a wilful refusal rather than a financial inability.
[39] This ground was not identified in Miss Harrison’s grounds of opposition but I
will briefly examine it.
[40] Where a person is presumed to be insolvent, through having failed to meet a bankruptcy notice, it is inappropriate to act on her bald assertion that she is solvent. In addition to identifying solvency as a ground of opposition, Miss Harrison ought to have given in evidence a reasonably detailed statement of assets, liabilities, income and expenses. She did not. On that basis alone, I would have refused to consider this ground of opposition.
[41] As a result of the way Miss Harrison has presented this issue, the Court does not know of the extent of any other debts Miss Harrison carries and of her ability to meet those. The Court cannot assume that her only debts are those owed to the judgment creditors in this case.
Natural justice
[42] Miss Harrison referred to statements in the sealed judgment which she took to mean that one of the judgment creditors had personally appeared before Toogood J, in the absence of Miss Harrison, and made submissions. Miss Harrison suggested there was a breach of natural justice. It is clear from the record as a whole that reference to the defendant appearing “in person” is not a reference to a hearing in Court. Rather, it is clear that Toogood J dealt with the application “on the papers”, with no physical hearing at all. There is no evidence to sustain Miss Harrison’s complaint.
Justice and equity
[43] Other aspects of Miss Harrison’s grounds of opposition identify concepts of equity and justice which fall for consideration under s 37(c) of the Act. An examination of her submissions indicates that those concepts are invoked in relation to the grounds of opposition which I already reviewed.
[44] To the extent that Miss Harrison was asking the Court to invoke a residual
“just and equitable” ground, I find there are no residual matters to assist her.
Halting of the application?
[45] In the event the Court was not prepared to refuse to adjudicate under s 37, Miss Harrison asked that the Court halt the application for adjudication.
[46] This application was not the subject of specific submissions. There is no basis to justify halting the proceeding given the conclusions I have made as to the appropriateness of adjudication. This is not a situation where other proceedings which might affect the insolvent’s financial position are being expeditiously pursued. The only other relevant proceedings are stayed. There is no evidence before me to suggest that it will be expeditiously resolved.
Conclusion
[47] There is no ground to justify refusing the judgment creditors an order of adjudication. Nor is there ground to halt the application.
Costs
[48] Costs must follow the event.
[49] It is appropriate that they be on a Category 2 Band B basis.
Order
[50] The orders I make are these:
(a) The judgment debtor’s application for an order halting the
adjudication application is dismissed;
(b) Pauline Janice Harrison is adjudicated bankrupt;
(c) Pauline Janice Harrison is to pay to the judgment creditors the costs of their application on a 2B basis together with disbursements to be fixed by the Registrar; and
(d) This order is timed at 10.30 am.
Solicitors:
Birdsey & Associates, Auckland.
Counsel: Ray Parmenter, Barrister, Auckland.
S J Shamy, Barrister, Christchurch.
Ms P J Harrison, Christchurch – Judgment Debtor.
Associate Judge Osborne
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