Howcraft v Skelton

[2016] NZHC 838

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-1663 [2016] NZHC 838

IN THE MATTER	of the Insolvency Act 1967
AND IN THE MATTER	of the bankruptcy of BEVIN HALL SKELTON
BETWEEN	CHARLES MICHAEL HOWCROFT Judgment Creditor
AND	BEVIN HALL SKELTON Judgment Debtor

Hearing:	26 April 2016
Appearances:	Mr B Skelton in person Mr B Cunningham for defendant
Judgment:	29 April 2016

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

29.04.16 at  4 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

HOWCROFT v SKELTON [2016] NZHC 838 [29 April 2016]

[1]      In this proceeding the judgment debtor seeks an order of the Court setting aside a bankruptcy notice which was served on him.  The bankruptcy notice is based upon an order for costs which Associate Judge Sargisson made as part of the judgment she delivered on 11 June 2015.   That judgment was concerned with an application to strike out a statement of claim which the judgment debtor, as plaintiff,

had  filed.1      The  judgment  debtor  was  ordered  to  pay  costs  on  the  strike  out

proceeding on a 2B basis.  The judgment creditor served a bankruptcy notice on the judgment debtor on 21 July 2015.

[2]      In  his  application,  the  judgment  stated  the  grounds  upon  which  the application was brought as being these:

a)       The judgment debtor has applied in the High Court at Auckland for an order seeking leave to extend time for filing a notice of appeal and the appeal is still to be decided;

b)There is a cross-claim against the creditor that is greater than the judgment debt;

c)       That a grave injustice will ensue if the time to appeal is not extended and the appeal filed;

…

[3]       There was no evidence before the court confirming the first ground and I

shall not consider it further.

[4]      The argument addressed to the court concerned only ground “b” above.

[5]      The judgment creditor opposes the application and the key grounds which he relies upon are these:

a)       The judgment debtor does not have a counter-claim, set-off or cross demand that equals or exceeds the amount claimed by the judgment creditor that he could not have put forward in the action or proceeding in which the judgment order was obtained;

b)The cross-claim put forward by the judgment  debtor is similar to claims that have been made in his amended statement of claim dated

30 January 2015 in the proceeding under CIV-2014-404-001897;2

[6]      Following the entry of the judgment against the judgment debtor, he applied to have a Judge review the decision.  However that proceeding was discontinued.  At the  present  time,  there  is  no  extant  proceeding  containing  the  claims  that  the judgment debtor now says he has against the judgment creditor and which he claims he ought to be able to raise as a ground for making an order setting aside the costs order.

[7]      The claims which the judgment debtor now brings fall into these categories:

a)       That  in  or about  2005  the judgment  creditor as  a trustee/solicitor breached his obligations by entering into a loan transaction on behalf of one of the trusts to borrow $70,000 in that he used his powers as trustee to grant a mortgage without first obtaining the funds that were to be raised by mortgage;

b)That the judgment debtor further breached the obligations that he owed to the judgment creditor arising from his status of partner in a property owning partnership which owned an apartment on the Gold Coast of Queensland in 2007.  The judgment debtor alleges that the judgment creditor breached his obligation by entering into an agreement for sale and purchase to purchase the half-share of the judgment debtor and interests associated with him at an under-value;

c)        He mis-managed trust funds in the period 2000 and 2004.

Statutory grounds for application and decided authorities

[8]      It is common ground that the application is made pursuant to s 17 of the

Insolvency Act 2006 that 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),—

(i)       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) ….

(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.

Compare: 1967 No 54 s 19(1)(d), (2)

[9]      In  Clark  v.  UDC  Finance  Ltd3   Casey  J  held  that  an  applicant  under

17(l)(d) must show:

(1)  that he has a genuine triable counterclaim, set off or cross demand;

and

(2) that it is such that he could not have set it up in the action in which the relevant judgment was given.

[10]     His Honour referred to the following passage from the decision of Lockhart, J

in Re Brink ex parte Commercial Banking CO of Sydney Ltd :4

The words ‘that he could not have set up in the action or proceeding in which the judgment or order was obtained’ mean ‘which he could not by law set up in the action’: see Re Jocumsen [(1929) 1 ABC 82] at p.85; Re a Debtor [1914] 3 KB 726[Green], per Avory J at 730; Re Stokvis (1934) 7

ABC 53[Green], especially per Lukin J at 57, where his Honour said:

‘I take a counter-claim, set-off, or cross demand which could not be set up as one which, from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained … Mere failure to take advantage of the opportunity can hardly be said to be inability.’

[11]     The section was also considered in the Court of Appeal judgment in Sharma v ANZ Banking Group in which the court stated:5

The Judge held that, as to the appellant's claim based on the execution, it did not satisfy s 19(1)(d) in that it was not in his view a genuine triable cross- demand. That is the criterion laid down or applied in a line of authorities: Re a Debtor [1963] 1 All ER 58, 87 per Lord Denning MR; Thomasen v Nigro unreported, 19 July 1978, CA124/76; and Clark v UDC Finance Ltd [1985]

2 NZLR 636 [Yellow] per Casey J. We accept that this is the proper criterion and that the words “genuine” and “triable” require the debtor to demonstrate that he has a claim of true substance which he genuinely proposes to pursue.

3            Clark v. UDC Finance Ltd [1985] 2 NZLR 636.

4        Re Brink ex parte Commercial Banking CO of Sydney Ltd (1980) 30 ALR 433 at 437.

5            Sharma v ANZ Banking Group (1992) 6 PRNZ 386.

The alleged cross claims

[12]     There is no extant proceeding in which the judgment debtor sets out any of the claims.  The first two of the claims have been previously litigated.  The judgment debtor is attempting to revive those claims.  Their content can be discerned from the statement of claim that Sargisson AJ struck out.

[13]     The reasons why the Judge struck out the claims were that they were statute- barred   and   also   that   the   judgment   debtor   had   entered   into   an   agreement compromising all disputes.

[14]     The third category which is the alleged mismanagement of trust funds in

2000 and 2004 is apparently a new claim.   This has never been put forward as a claim in proceedings.

The alleged loan claim

[15]     Dealing first with the claim based on the alleged loan, the application must fail because not only did the judgment debtor have the opportunity to bring a cross- claim based upon alleged breaches of duty by the judgment creditor in relation to that loan but he actually pleaded such a claim in the proceeding which was struck out.  His claim does not come within the terms of  s 17(1)(d)(ii) of the Act.

[16]     Further, I am unable to accept that having regard to the terms of the judgment striking out the claim that it is open to the judgment debtor to nonetheless contend that he has a genuine and triable claim in regard to the claim based on the loan. There is no doubt that if a further proceeding was raised which brought those matters up again, it would again be subjected to the same defences as were raised before Sargisson AJ in the strike out proceedings.

The claim based on the apartment partnership

[17]     Exactly the same comments can be made in relation to this alleged claim as I

have determined with respect to the claim based upon the $70,000 mortgage loan.

The third claim

[18]     Mr Skelton told me that the third proposed claim was for “mis-management of trust funds between 2000 and 2004”.   He was intending to seek non-party pre- action discovery in order to obtain the information he says that he needs to bring this claim.

[19]     There is no possible basis upon which the Court could be satisfied that this proposed new heading of claims would be the basis of a cross claim.  Given the very considerable lapse of time that has occurred since the claims allegedly came into existence, there would be a very major obstacle in the path of Mr Skelton in attempting to explain why the claim could not have been brought at the time when he started the proceedings which were the subject of the strike-out judgment that Associate Judge Sargisson issued.

[20]     It is impossible to comment additionally about the proposed claim because no application has been made pursuant to r 8.20 for particular discovery.   In order to avoid having the claim for pre-proceeding discovery dismissed as being a fishing expedition, it would be necessary for the judgment debtor to describe the documents

to be sought with some specificity.6

[21]     No doubt the very extensive delays in initiating a claim of this kind would need to be explained before the Court would make an order and then of course there would be doubts about what documents would be available after such a lapse of time.

[22]     The claim, if it ever actually becomes a claim, is nothing more than a vague general assertion that there has been breaches of trust on the part of the judgment creditor.  This does not amount to a sufficient foundation for the judgment debtor to claim that he has a cross-claim within the meaning of s 17 of the Insolvency Act

2006.

6 McGechan on Procedure, at 8.20.30.

Conclusion

[23]     The application to set aside the bankruptcy notice is dismissed.  Pursuant to r 14.2(a) the judgment debtor as the party who has failed with respect to the proceeding is tp pay costs.  Costs are to be on a 2B basis together with disbursements

as fixed by the Registrar.

J.P. Doogue

Associate Judge