HG Metal Manufacturing Ltd v Navaratnam

[2022] NZHC 2183

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-001195

[2022] NZHC 2183

BETWEEN

HG METAL MANUFACTURING LIMITED

Judgment Creditor

AND

VASHIHARAN NAVARATNAM

Judgment Debtor

Hearing:	11 May 2022
Appearances:	T B Fitzgerald and B J Dominikovich for the Judgment Creditor Judgment Debtor in Person
Judgment:	30 August 2022

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 30 August 2022 at 2.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Bell Gully, Auckland

HG METAL MANUFACTURING LTD v NAVARATNAM [2022] NZHC 2183 [30 August 2022]

Introduction

[1]    HG Metal Manufacturing Ltd (HG Metal) applies for an order adjudicating Vashiharan Navaratnam bankrupt. It says that Mr Navaratnam owes HG Metal the following amounts:

(a)SGD 404,736.10 and USD 1,230,187.73 plus interest, fees and expenses, pursuant to a judgment of Katz J determining HG Metal’s application for enforcement of an overseas arbitral award;1 and

(b)$73,027.39, pursuant to the costs judgment of Katz J following that decision.2

[2]    HG Metal submits that the criteria for an adjudication order under s 13 of the Insolvency Act 2006 are met and Mr Navaratnam has not established any basis on which this Court ought to exercise its discretion not to make the order.

[3]    Mr Navaratnam opposes the application. Alternatively, he asks the Court to stay the proceeding while certain appeals are determined.

[4]The issues are:

(a)Are the s 13 criteria met?

(b)Despite that, should the Court exercise its discretion to refuse to adjudicate Mr Navaratnam bankrupt?

(c)Alternatively, should the Court stay the bankruptcy proceedings to permit appeals to be resolved?

1      HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 1920.

2      HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 2498.

Background

[5]    On  23  April  2020,  HG   Metal   obtained   an   arbitral   award   against   Mr Navaratnam and his wife in Singapore (the Award). The Award held that Mr and Mrs Navaratnam had breached a guarantee they provided to HG Metal concerning Gayathri Steels Pte Ltd in 2013. The Award was not appealed.

[6]    As Mr and Mrs Navaratnam now live in New Zealand, HG Metal applied to this Court for orders that the Award be entered as a judgment (the Recognition and Enforcement Application). Mr Navaratnam opposed that application.

[7]    On 22 February 2021, Fitzgerald J declined Mr Navaratnam’s application to stay the hearing of HG Metal’s Recognition and Enforcement Application and awarded costs against him in relation to the list mention.3

[8]    Mr Navaratnam did not comply  with  the  costs  order.  On  7  July  2021, HG Metal served him with a bankruptcy notice demanding payment of the costs order.

[9]    On 14 July 2021, Mr Navaratnam applied to set aside the bankruptcy notice. Associate Judge Bell dismissed his application on 12 August 2021. He stated that with his determination, the time for bringing a bankruptcy application under s 13 of the Act began. He also stated that, in applying for an adjudication order, HG Metal was entitled to rely not only on the  Fitzgerald J costs  order but on any other  amount   Mr Navaratnam owes it.4

[10]   Mr Navaratnam paid the amount demanded under the bankruptcy notice on 13 August 2021, the day after Associate Judge Bell’s decision. However, by that time the timeframe for compliance had expired.5

[11]   In the meantime, on 28 July 2021, Katz J granted HG Metal’s Recognition and Enforcement Application and entered the Award as a judgment against Mr Navaratnam

3      Navaratnam v HG Metal Manufacturing Ltd HC Auckland CIV 2020-404-1195/CIV 2020-404- 2230, 22 February 2021 (Minute of Fitzgerald J) at [5]–[6].

4      HG Metal Manufacturing Ltd v Navaratnam HC Auckland CIV-2020-404-1195, 12 August 2021 (Minute of Associate Judge Bell) at [13].

5      At [12]; High Court Rules 2016, r 24.10(1).

(the Substantive Judgment). That judgment includes the sums of SGD 404,736.10 and USD 1,230,187.73 plus interest, fees and expenses. Mr Navaratnam has not paid this amount. This is the first debt HG Metal relies on in its adjudication application.

[12]On 22 September 2021, Katz J ordered that Mr Navaratnam pay costs of

$73,027.39 to HG Metal as he had been the unsuccessful party in the Substantive Judgment (the Costs Award). Mr Navaratnam has not paid this amount either. This is the second debt HG Metal relies on in its application.

Legal principles

[13]    The criteria for when a creditor may apply for the debtors’ adjudication are set out in s 13 of the Insolvency Act 2006 (the Act):

13       When creditor may apply for debtor’s adjudication

A creditor may apply for a debtor to be adjudicated bankrupt  if —

(a)the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)the debt is a certain amount; and

(d)the debt is payable either immediately or at a date in the future that is certain.

[14]   Under s 17, a debtor commits an act of bankruptcy if a creditor has obtained a final judgment/order against the debtor for any amount, the execution of which has not been halted by a court, and the debtor, having been served with a bankruptcy notice, has not complied with the requirements of the notice or otherwise satisfied the Court that he or she has a cross-claim against the creditor.

[15]   Once the s 13 requirements are made out, the creditor is prima facie entitled to an adjudication order.6 However, under ss 36 and 37, the Court has a discretion as to whether it adjudicates the debtor bankrupt.7 The onus is on the defendant to satisfy the Court not to make the order. This Court has said:8

… the petitioning creditor does not have an automatic right to obtain an order of adjudication, nevertheless the onus in those circumstances is on the debtor to persuade the Court that an order should not be made.

[16]   As the Court of Appeal has observed, s 37 confers a “wide discretion” informed by various factors.9 These include whether the debtor is able to pay their debts over time, bearing in mind that bringing finality within a reasonable period is the essence of bankruptcy proceedings; whether adjudication is conducive or detrimental to the wider public interest; and whether adjudication would be pointless because the creditors are unlikely to receive any payment.10

[17]   The Court may also, in its discretion, halt or refuse adjudication when the judgment underlying the bankruptcy notice is under appeal and that appeal is still to be decided.11

Are the s 13 criteria met?

Section 13(b): Has Mr Navaratnam committed an act of bankruptcy within three months before the filing of the application?

[18]   Mr Navaratnam submits that the amount in the bankruptcy notice was settled and the file CIV-2021-404-1195 closed, meaning HG Metal was not entitled to file this application.

[19]   Mr Navaratnam appears to rely on a copy of the Register of Documents Filed in this proceeding as evidence that the Court Registry had updated the “case status” of this proceeding to “closed” at 8 October 2021. His argument seems to be that

6      See Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 5 and 7; and Re Epirosa HC Wellington B498/91, 6 March 1992 at 5 and 8.

7      Insolvency Act 2006, ss 36 and 37.

8      Kiwibank Ltd v Hutchin [2015] NZHC 1518 at [26].

9      Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [15].

10 At [15].

11     Insolvency Act 2006, s 42.

HG Metal ought not to have been allowed to file this application because the Court’s file had been marked “closed”.

[20]   This objection misunderstands the Registry’s administrative process. As the Registry has explained to Mr Navaratnam, if an application to set aside a bankruptcy notice is dismissed, the Registry records the ‘case status’ of bankruptcy proceedings as ‘closed’ and then reactivates the file when an application for adjudication is filed.12

[21]   In any case, the administrative categorisation of the file by the Registry does not have any bearing on the application of the Act to Mr Navaratnam.

[22]   As noted, Mr Navaratnam paid the amount demanded under the bankruptcy notice on 13 August 2021. That was too late to avoid the act of bankruptcy. The time for compliance with the bankruptcy notice ended on the expiry of the day Associate Judge Bell dismissed his application to set aside the notice, namely 12 August 2021. This is clear from r 24.10 of the High Court Rules which states that the time for compliance is extended to “until the application [to set aside the bankruptcy notice] has been determined.” The fact that payment was made subsequently does not change the fact that an act of bankruptcy occurred.

[23]   Further, there is no evidence that the payment was made pursuant to a settlement between Mr Navaratnam and HG Metal which involved HG Metal agreeing not to bring an application for adjudication based on this act of bankruptcy.

[24]   HG Metal’s application for adjudication was filed on 10 November 2021, within three months of the act of bankruptcy on 12 August 2021.   The criterion in    s 13(b) is met.

Section 13(a): Does Mr Navaratnam owe HG Metal $1,000 or more?

[25]   As previously mentioned, HG Metal relies on two unpaid judgments of this Court, both exceeding $1,000:

12     BJD243

(a)the   Substantive    Judgment    for    SGD    404,736.10    and    USD 1,230,187.73 plus interest, fees and expenses and sealed orders to that effect;13

(b)the Costs Award of $73,027.39 and sealed orders.14

[26]   Mr Navaratnam says that HG Metal cannot bring an application based on these debts because they were not part of the bankruptcy notice. That is incorrect. For the purposes of s 13(a), a judgment creditor is not limited to the debt specified in the bankruptcy notice. This is settled law. As this Court confirmed in The Ministry of Justice v McGuire:15

… the judgment creditor may claim any outstanding debt. He, she or it is not limited to the amount claimed in the bankruptcy notice.

[27]   Associate Judge Bell made this point to Mr Navaratnam in his decision dismissing Mr Navaratnam’s application to set aside the bankruptcy notice:16

In making its bankruptcy application, HG Metal Manufacturing Ltd will be entitled to rely not only on the costs order of Fitzgerald J but also on any other indebtedness of Mr Navaratnam to it.

[28]   In his Notice of Opposition, Mr Navaratnam refers to HG Metal “attempting to substitute itself under s 44 of the Insolvency Act”. That section deals with the situation where a creditor seeks to substitute itself for another creditor (the petitioning creditor), where the petitioning creditor does not want to continue the proceeding. That is not what HG Metal is purporting to do here.

13     HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 1920; and orders entering award as judgment against first defendant dated 28 July 2021.

14     HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 2498; HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 2701 at [51(c)]; and orders of the Court as to costs

dated 8 October 2021.

15 The Ministry of Justice v McGuire [2018] NZHC 3322 at [4]. See also Re Chapman, ex parte Commissioner of Inland Revenue (2007) 23 NZTC 21,521 (HC) at [36] and Curtis v Commissioner of Inland Revenue HC Wellington B244/97, 12 November 1997 at 4–5 (both referring to the equivalent section in the Insolvency Act 1967).

16   HG    Metal    Manufacturing    Ltd    v    Navaratnam    HC    Auckland    CIV-2020-404-1195,   12 August 2021 (Minute of Associate Judge Bell) at [13].

Section 13(c): Is the debt for a certain amount?

[29]   The debts relied on are both money judgments of this Court. They are for fixed amounts, which are specified in the sealed orders and the application for adjudication.

Section 13(d): Is the debt payable either immediately or at a date in the future that is certain?

[30]   On 25 March 2022, Mr Navaratnam made an application in the Court of Appeal under the CIV number of the Recognition and Enforcement Application proceedings for a “stay of proceeding or stay of enforcement proceedings” (the Stay Application). He sought a stay pending resolution of:

(a)the appeal brought by Mrs Navaratnam against the decision to enter the Award as judgment against her (CA692/2020) (Mrs Navaratnam’s Appeal);

(b)Mr Navaratnam’s appeal of the striking out of his purported application to this Court for judicial review of various decisions of this Court in proceedings between HG Metal and Mr Navaratnam, including the Substantive Judgment and Costs Award (CA152/2022) (Judicial Review Appeal). In striking out the application, Jagose J had said:17

In very significant part, looking past its judicial review veneer, this proceeding embodies the applicants’ dissatisfaction with the substance of this Court's impugned decisions. No exceptional circumstance is evident. As such, I am satisfied this proceeding plainly is an abuse of the Court’s process. An abuse is “improper use of [the Court’s] machinery”; use of that process “for a purpose or in a way significantly different from its ordinary and proper use”. Here, as I have explained, that is the proceeding's improper attempt to obtain judicial review of this Court's decisions. The applicants can have no reasonably arguable case to claim it.

(citations omitted)

On 21 April 2022, HG Metal applied to strike out Mr Navaratnam’s appeal   against             Jagose    J’s         decision          as   an    abuse    of process.

17     Navaratnam v High Court of Auckland [2022] NZHC 371 at [6].

Mr Navaratnam has not filed any documents in opposition to that application. HG Metal’s application was heard on 18 July 2022 and the decision reserved.

[31]   The Registrar of the Court of Appeal declined to accept the stay application for filing on the basis that it ought to have been filed in this Court in the first instance. Mr Navaratnam applied to review the Registrar’s decision. On  3  May  2022, Collins J declined to review the Registrar’s decision and confirmed that Mr and   Mrs Navaratnam needed to file the stay application in this Court first. He added that he did not see any merit in the appeals and considered it “highly unlikely” that any court would grant a stay.18

[32]   I will return to these appeals when it comes to the Court’s  discretion under    s 37 of the Act. But for the purposes of s 13(d), as there has been no decision of this Court staying enforcement of the two judgments, the debts are immediately payable.

[33]   Further, Mrs Navaratnam’s Appeal has no bearing on enforcement of the two judgments against Mr Navaratnam. HG Metal commenced the Recognition and Enforcement Application against both Mr and Mrs Navaratnam, but they proceeded differently because Mrs Navaratnam did not file any documents in opposition or take any steps. Accordingly, on 22 October 2020, Woolford J entered judgment by default against Mrs Navaratnam. Mrs Navaratnam filed a notice of appeal in late 2020. In December 2021, the Court of Appeal sought submissions to strike out that appeal due to lack of progress.   HG Metal made submissions  in support of strike out while    Mr Navaratnam filed submissions on his  and his  wife’s  behalf in opposition.  On  13 May 2022, the Court declined to strike out the appeal and directed that it be determined promptly on the merits to avoid any further unnecessary delays.19 A second strike-out application was subsequently filed which was heard on 19 July 2022, with the Court reserving its  decision.  Whatever  the  outcome  of  that  process,  Mrs Navaratnam’s Appeal is irrelevant to the enforceability of the two judgments against Mr Navaratnam.

18     Navaratnam v High Court at Auckland [2022] NZCA 156 at [15] and [19].

19     Navaratnam v HG Metal Manufacturing Ltd [2022] NZCA 185 at [16] and [22].

[34]   Before leaving this topic, I deal with Mr Navaratnam’s argument that “the Court has not given permission to enforce the [Award] as required under s 17(6) of the Insolvency Act.” HG Metal does not require the Court’s permission under s 17(6) of the Act to enforce the Award because the Award has been entered as judgment in New Zealand. That was the outcome of the Substantive Judgment. It is that judgment of this Court that HG Metal seeks to enforce.

Conclusion on s 13

[35]   The statutory criteria in s 13 of the Act are satisfied. HG Metal is prima facie entitled to an adjudication order. However, the Court still has a discretion as to whether it adjudicates Mr Navaratnam bankrupt. Under s 37, it may refuse to make the orders if it considers, amongst other things, that it would be unjust or inequitable to do so. As noted, the onus is on Mr Navaratnam to persuade the Court to exercise its discretion. I consider other objections Mr Navaratnam has raised under this heading.

Despite s 13 being met, should the Court exercise its discretion to refuse to make orders for Mr Navaratnam’s adjudication?

The appeals

[36]   Mr Navaratnam asks the Court to refuse, or alternatively stay, the application until Mrs Navaratnam’s appeal and the Judicial Review Appeal are determined.

[37]   Mr Navaratnam argues that this proceeding should be dismissed or stayed to permit   Mrs   Navaratnam’s   Appeal.   As    Mr    Navaratnam    acknowledged,  Mrs Navaratnam can prosecute her appeal irrespective of Mr Navaratnam’s bankruptcy. He argued that his bankruptcy would affect her financial ability to prosecute her appeal. A potential consequential financial impact of this kind does not provide a compelling reason for me to exercise my discretion. Further, as noted earlier, Mrs Navaratnam’s Appeal is  entirely  separate  to  the  judgments  against Mr Navaratnam and whatever the outcome  will  not  affect  his  indebtedness  to  HG Metal.

[38]   The Judicial Review Appeal is completely without merit. This Court cannot review its own decisions by way of judicial review. Jagose J explains why in his judgment. I can see no prospect of this appeal succeeding and therefore it does not provide me with a reason to exercise my discretion.

[39]   I also note for completeness that there are no other active appeals which might give me grounds to use my discretion not to adjudicate Mr Navaratnam bankrupt. There is no extant appeal of the Substantive Judgment. The Court of Appeal declined Mr Navaratnam’s application for an extension of time to appeal the High Court’s decision on 20 December 2021.20 In so doing, it noted that although the application was only five days late, the merits of the appeal were such that there would be no point extending the time.21

[40]    Mr Navaratnam appealed the Costs Award on time, but on 20 January 2022 the appeal was deemed to be abandoned under r 43 of the Court of Appeal (Civil) Rules 2005 because Mr Navaratnam did not file the case on appeal and pay security for costs on time, or apply for an extension of time to do so.22

[41]   Overall, Mr Navaratnam has not persuaded me that, despite being unable to pay his debts, it would be unjust or unfair to adjudicate him bankrupt. It is in the public interest that Mr Navaratnam not incur any further obligations that he is unable to meet. There is also a strong public interest in orders of the Court being enforced.23

Alternatively, should the Court stay the bankruptcy proceedings to permit appeals to be resolved?

[42]   For the same reasons, I decline to stay the bankruptcy proceedings until    Mrs Navaratnam’s Appeal and the Judicial Review Appeal are determined.

[43]   Given the lengthy and complicated litigation preceding this point, it would be most unfair to deny HG Metal the benefit of the two judgments any longer, when the

20     Navaratnam v HG Metal Manufacturing Ltd [2021] NZCA 704.

21 At [32].

22     Notice of Result in CA623/2021 dated 20 January 2022.

23     Copland v Goodwin [2013] NZHC 652 at [58]; and see Commissioner of Inland Revenue v Faloon

[2016] NZHC 760 at [46] and Dench v Gates [2013] NZHC 3134 at [5].

outstanding appeals are alternately irrelevant to the debt owed by Mr Navaratnam to HG Metal; or obviously without merit.

Result

[44]   I order that Vashiharan Navaratnam is adjudicated bankrupt. The time of the order is 2.00 pm.

[45]   As the unsuccessful party, Mr Navaratnam will pay HG Metal’s costs on a scale 2B basis, and reasonable disbursements fixed by the Registrar.

Associate Judge Gardiner