Howcroft v Skelton

[2016] NZHC 1389

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-001663 [2016] NZHC 1389

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:	23 June 2016
Appearances:	B M Cunningham for Judgment Creditor B H Skelton for Judgment Debtor
Judgment:	23 June 2016

JUDGMENT OF VENNING J

ORDER FOR ADJUDICATION MADE AT 1.15 PM

Solicitors:           BSA Law, Auckland

Copy to:            B Cunningham, Auckland

B H Skelton, Auckland

HOWCROFT v SKELTON [2016] NZHC 1389 [23 June 2016]

[1]      The  judgment  creditor  seeks  an  order  adjudicating  the  judgment  debtor bankrupt.  The order is opposed.  There is a lengthy procedural history to this matter. The judgment debt arose out of a costs order made by the Court when Associate Judge Sargisson struck out a claim and made an order for costs personally against the judgment debtor. That was on 11 June 2015.

[2]      On  23  July  2015  the  judgment  debtor  filed  an  application  for  an  order extending time to file a notice of appeal. Shortly thereafter the judgment creditor served the bankruptcy notice on the judgment debtor.   The judgment debtor then filed an affidavit and notice of application to set aside the bankruptcy notice.

[3]      The application to set aside the notice was called a number of times in the

Insolvency list in the latter part of 2015 and early 2016.

[4]      On 18 February 2016 the judgment debtor discontinued his application to review the order of Associate Judge Sargisson striking out the proceeding which had led to the order for costs.

[5]      The matter was then called on further occasions in the Insolvency list before the judgment debtor’s application for an order setting aside the bankruptcy notice was heard on 26 April 2016 before Associate Judge Doogue.  On 29 April 2016 the Associate Judge dismissed the application for the order setting aside the bankruptcy notice.

[6]      The matter has now come before the Court this morning on an opposed basis. The judgment debtor opposes the application for adjudication on the following grounds:

(a)       he does not owe a debt to the judgment creditor;

(b)he seeks an order pursuant to s 43(2) of the Insolvency Act 2006 halting the application so that the question of whether the debt is owed or how much of the debt is owed can be resolved at trial;

(c)       he seeks such an order in accordance with s 38(1) and (2) of the

Insolvency Act 2006;

(d)he intends to dispute the judgment creditor’s debt for costs of $1,998 including a fee of $500 and a service fee of $150 in the summons to debtor;

(e)      he says he has a cross-claim against the judgment creditor that has not previously been litigated and has an application for pre- commencement discovery to enable him to particularise that;

(f)      he says the application for pre-commencement discovery is set down for hearing at 10.00 am on 24 August 2016;

(g)he says that a cross-claim under s 17(7) of the Insolvency Act 2006 means a counterclaim, set-off, or cross demand that –

(i)is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay;  and

(ii)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.

[7]      In response the judgment creditor says that the debt is owed.   The debt is based on a sealed order of this Court for costs.  The judgment underlying that order was subject to review but the judgment debtor chose not to pursue the application for review.   The costs fixed on the strike-out order remain payable and are unpaid. There can be no question that the debt is currently due and owing.

[8]      Next, the judgment creditor says that the costs claimed in the summons of

$1,998 and the disbursement of $500 and a service fee are costs and disbursements payable in accordance with the scale and schedule.

[9]      Next,  the  judgment  creditor  says  that  the  judgment  debtor  has  failed  to comply with s 17 of the Insolvency Act and has committed an act of bankruptcy. The application to set the notice aside was unsuccessful.

[10]     While acknowledging that  there is  an  application  for pre-commencement discovery set down for mention in the Duty Judge list on 24 August the judgment creditor submits that the judgment debtor does not have a claim against the judgment creditor. Also he has voluntarily filed an affidavit of documents.

[11]     As the decision of Associate Judge Doogue confirms, the judgment debtor has committed an act of bankruptcy.  There is no question but that the debt is still outstanding and owing.

[12]     The issue for the Court at this stage is whether the Court should exercise the discretion under s 36 of the Insolvency Act in the debtor’s favour, decline to make an order for adjudication and dismiss the petition or, in the alternative, halt the application for adjudication under s 38.

[13]     I note here that although Mr Skelton referred in his papers to s 42 of the Insolvency Act that section does not apply because the judgment relating to the costs order is not itself the subject of any appeal.  As noted an application for review of that decision was not pursued by the judgment debtor and was ultimately dismissed.

[14]     Essentially Mr Skelton, the judgment debtor, submits that bankruptcy would have the effect of preventing the BH Skelton Children’s Trust (the Trust)  from pursuing three proceedings.  Those proceedings are as I understand it, effectively the only assets of the Trust.  The relevance of that to his case is that he, along with his children, are, I am told, discretionary beneficiaries of the Trust.

[15]     Those three assets are, in his words:

(a)      first, the application for pre-commencement discovery against the judgment creditor, who was previously solicitor and co-trustee for the Trust, which as noted, is for hearing in August;

(b)next, a claim against Mr Nair, a matrimonial property receiver, (which claim I apprehend was dismissed by this Court because it was the subject of an appeal to the Court of Appeal).  That appeal hearing was heard on 16 June;  and

(c)      finally, a proceeding against Mr Bird, which again I apprehend was unsuccessful as it has an appeal to the Court of Appeal for hearing on

1 August 2016.

[16]     Mr Skelton urged the Court not to adjudicate him bankrupt.   He submitted that if he was adjudicated bankrupt those claims would not be pursued.  In relation to that, as discussed with Mr Skelton, his personal bankruptcy would not affect the claims which are sought to be pursued on behalf of the Trust.  The Trust’s claims, such as they are, and whatever value they may have, would not be affected by Mr Skelton’s bankruptcy.  Those claims of the Trust would not, as Trust property, vest in the Official Assignee.  It is only Mr Skelton’s personal property that would vest.

[17]     Next,  Mr  Skelton  argued  that  the  Court  should  halt  the  adjudication proceedings pending the outcome of the Trust’s proceedings, because as a discretionary beneficiary he might benefit from them.

[18]     In relation to that it is relevant to consider the proposed claims briefly.  First, the claim for pre-commencement discovery follows the strike-out application in this case.  The strike-out was successful, largely on the basis of a limitation defence.  The only response or answer to that would be an allegation of fraud.  It is for that reason that the Trust seeks pre-commencement discovery against the judgment creditor.

[19]     It has to be said that despite everything Mr Skelton has advanced in support of the argument for the Trust for fraud that on the information before the Court the proposed claim is at best speculative.   Clearly, it is still in its early stages.   No proceedings have been issued.

[20]     Next, the other two proceedings were cases where the Trust was unsuccessful before the High Court and are currently subject to appeal.

[21]     Again on the information currently before the Court, the Court cannot be satisfied that there is any particular merit in those claims, such that the adjudication should be halted, particularly as they are not personal to Mr Skelton and are not against the judgment creditor.

[22]     Given the delays, if the adjudication was to be halted it would be halted on terms  that  the  full  amount  of  the  judgment  debt  together  with  costs  be  paid. However, during the course of submissions Mr Skelton confirmed that he had no assets of any kind and confirmed he could not pay the judgment debt.

[23]     Mr Skelton also submitted that there was no public interest in adjudicating him bankrupt and the effect of bankruptcy would be to punish him.   He says he would lose his licence to operate as an immigration consultant.  However, he also said during the course of submission that he has not used that licence since obtaining it because over the last few years he has been pursuing the Trust’s cases.

[24]     I  accept  that  there  is  no  evidence  of  any  other  debts  or  any  particular commercial or public concern about Mr Skelton’s behaviour, such that general public interest would require his bankruptcy.  Nevertheless there is the point that he has put the judgment creditor in this case to substantial costs in pursuing what to date, the Court has said is a claim that could not properly be pursued.  He has taken no steps or made any effort to address the payment of costs.  Rather at every stage of these proceedings he has put the judgment creditor to further costs and expenses.  It is not so much an issue of punishing the judgment debtor but bringing home to him the responsibility that a party has when he or she unreasonably causes other parties to the litigation to incur costs opposing an unmeritorious claim.

[25]     Nothing the judgment debtor raises satisfies the Court that the discretion should be exercised in its favour.   There is nothing in the proposed proceedings (which would benefit the Trust) that would lead this Court to make an order halting the proceedings at this stage.

[26]     On the basis that the debt is acknowledged as outstanding and cannot be paid

there will be an order for adjudication. The order is timed at 1.15 pm.

Venning J