Hu v Liu

[2023] NZHC 2588

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-899

[2023] NZHC 2588

IN THE MATTER

of the Insolvency Act 2006

AND

IN THE MATTER

of the bankruptcy of KUN LIU

BETWEEN

ZHENGXI HU

Judgment Creditor

AND

KUN LIU

Judgment Debtor

Hearing:	11 September 2023 (by AVL)
Appearances:	Z Hu – self-represented Judgment Creditor R O Parmenter for Judgment Debtor
Judgment:	15 September 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 15 December 2023 at 3.30pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

……

HU v LIU [2023] NZHC 2588 [15 September 2023]

[1]                Mr Hu applied for the issue of a bankruptcy notice against Ms Liu. Mr Hu then assigned absolutely his interest in the judgment to a Mr Ee Kuoh Lau (Mr Lau), but with the assignment purporting to leave “the bankruptcy proceeding rights” with Mr Hu.

[2]                Ms Liu applied to set aside the bankruptcy notice on the basis Mr Hu was no longer the creditor by the time the notice was served on her. Mr Hu has applied for an order under r 4.56 of the High Court Rules 2016 (the Rules) that Mr Lau also be named as a creditor on the bankruptcy notice.

Timeline and context

[3]The timeline and context is as follows:

28 April 2023: Mr Hu obtains judgment against Ms Liu.

5 May 2023: Mr Hu requests the issue of a bankruptcy notice from the Court. While the request is dated 5 May 2023, the Court stamp  on the request  of  15 May 2023 is in error, the filing fee being paid on 5 May 2023.

6 May 2023: Mr Hu assigns absolutely to Mr Lau all his “right title and interest” in the judgment debt subject to the purported reservation noted above.

15 May 2023: Bankruptcy notice issued by the Court and it appears served the same day.

16 May 2023: Ms Liu applies to set aside the bankruptcy notice on the grounds Mr Hu had absolutely assigned his rights under the judgment to Mr Lau therefore no debt was owed to Mr Hu.

17 May 2023: Mr Hu applies to add Mr Lau as judgment creditor, relying on the 6 May 2023 assignment.

[4]                Associate Judge Taylor, in a minute of 15 June 2023, directed the application by Mr Hu to join Mr Lau as a judgment creditor be heard prior to the application to set aside the bankruptcy notice.

The terms of the assignment

[5]                The assignment between Mr Hu and Mr Lau dated 6 May 2023 records in Background B:

B.LAU has expressly requested that HU to assign and transfer by way   of assignment all of HU’s interests in the sealed Court order 28.4.2023 in order to set-off any debt that owed by Hu to LAU and his business partner(s).

[6]“Assigned Property” is defined as follows:

“Assigned Property” means:

(a)all interests of HU under sealed court order dated 28.4.2023 under CIV2022-404-1635

(b)all rights of action and claims of HU (if any) arising out of or relating to the Debt and the assigned Documents; and

(b)all moneys payable to or to become payable to HU under, by virtue    of, or in respect  of  sealed  court  order  dated  28.4.2023  under  CIV 2022-404-1635.

[7]The assignment clause itself provides:

2.Assignment

2.1Assignment: In consideration of and subject to signing by LAU to this deed and from the Effective Date:

(a)   HU assigns absolutely to LAU all its right, title and interest under the sealed court order dated 28.4.2023 under CIV 2022-404-1635

(b)   Hu transfers by way of assignment to LAU all interest in respect  of  sealed  court  order  dated  28.4.2023   under  CIV 2022-404-1635 the assigned Property(if any) and LAU agrees to accept the assigned Property to set off the debt;

(c)    The bankruptcy proceeding rights remain with HU.

The basis of Mr Hu’s application

[8]Rule 4.56 provides:

4.56     Striking out and adding parties

(1)A Judge may, at any stage of a proceeding, order that—

(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or

(b)the name of a person be added as a plaintiff or defendant because—

(i)the person ought to have been joined; or

(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.

(emphasis added)

[9]                The difficulty Mr Hu and Mr Lau have created is that on the day Mr Hu applied for a bankruptcy notice, he was a person entitled to enforce a final judgment in terms of s 29(3) of the Insolvency Act 2006,1 but by the time the bankruptcy notice was issued, Mr Hu was not a person entitled to enforce a final judgment by virtue of the assignment.

[10]            Mr Parmenter, counsel for Ms Liu, submitted Mr Hu cannot assert an available act of bankruptcy has occurred (even if the application to set aside the notice did not stop time running: r 24.10) or an act of bankruptcy  could  occur  as the  money is  not owed to Mr Hu; he does not own the debt. Mr Lau has not issued a bankruptcy notice and is not the creditor named in the notice issued on 15 May 2023, so he could assert an act of bankruptcy has occurred.

[11]            The debt relied on by a creditor to obtain a bankruptcy notice must be immediately legally enforceable.2 Section 17(5) of the Insolvency Act 2006 provides that the person for the time being entitled to enforce a final judgment is, for the

1      Section 29(3)(a) provides: “(a) creditor includes a person entitled to enforce a final judgment or final order; and”.

2      Lynne Taylor and Grant Slevin The Law of Insolvency in New Zealand (Thomson Reuters, Wellington, 2021) at [4.2.4].

purposes of obtaining a bankruptcy notice, deemed to be a creditor who has obtained the final judgment. I find Mr Hu, by virtue of the assignment, is no longer entitled to enforce the judgment when the notice was served as he was no longer a creditor.

[12] The assignment stating: “The bankruptcy proceeding rights remain with Hu”, in my view, was not enough to undo the absolute assignment to Mr Lau. To maintain the bankruptcy process, Mr Hu had to be a creditor – paragraphs (a) and (b) of the assignment set out at [7] above ended Mr Hu’s status as creditor.

[13]            As Ms Liu has notice of the assignment, it would be unclear to whom Ms Liu should pay the judgment debt if Mr Hu was correct. Mr Hu said if the money was paid to him he would pay it on to Mr Lau. But that is not an answer to the fact that it is Mr Lau that now owns the debt. If Mr Hu did not pay the money on to Mr Lau then Ms Liu could be at risk of Mr Lau demanding the money again from her.

The order sought by Mr Hu

[14]            Mr Hu’s application under r 4.56 seeks: “to add Mr Ee Kuoh LAU as another party of judgment creditor”.

[15]            As Mr Lau was not entitled to enforce the judgment at the time the request for a bankruptcy notice was filed, he was not a person “who ought to have been joined” at that time in terms of r 4.56. At the time the request was filed, Mr Lau had no interest in the debt – he could not have requested a bankruptcy notice nor was he a joint creditor with Mr Hu.

[16]            In my view, r 4.56 is not the applicable rule. Where a party has assigned the benefit of a debt, a new parties order may be applicable. Rule 4.52 provides:

4.52     New parties order

(1)Subclause (2) applies if, after a proceeding has commenced, there is an event causing a change or transmission of interest or liability (including death or bankruptcy) or an interested person comes into existence, making it necessary or desirable—

(a)that a person be made a party; or

(b)an existing party be made a party in another capacity.

…

[17]            McGechan on Procedure notes that the purpose of r 4.52(1) is to facilitate the carrying on of proceedings without undue expense or delay.3

[18]Rule 4.51 of the Rules provides:

4.51     Devolution when proceeding pending

A proceeding may be continued by or against a person to or on whom an estate or title is assigned, created, or devolved if the assignment, creation, or devolution takes place when a proceeding is pending.

[19]McGechan provides that rr 4.52(1) and 4.51 are to be read together.

[20]            It has been accepted that when the two rules are read together, they are designed to authorise, in a proper case, continuation of a proceeding by an assignee instead of a plaintiff.4

Is a bankruptcy notice a proceeding for the purposes of rr 4.51 and 4.52?

[21]There is authority that a bankruptcy notice is a proceeding.5

[22]“Proceeding” is defined in the Rules at 1.3 as:

proceeding means any application to the court for the exercise of the civil jurisdiction of the court other than an interlocutory application.

[23]            The status of a bankruptcy notice as a proceeding was recently addressed by the Court of Appeal.6

[24]            Associate Judge Smith, in the case under appeal, considered a bankruptcy notice was not regarded as a civil proceeding because it did not trigger any process for the exercise of the High Court civil jurisdiction. The Court of Appeal did not agree with that view.

3      Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [4.52.01].

4      Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey & Sons Ltd [1927] NZLR 459 at 461.

5      Stockco Ltd v Denize HC Auckland CIV-2011-404-3557, 31 October 2011.

6      Siemer v Complete Construction Ltd [2022] NZCA 262 at [59]-[62].

[25]            Accordingly, I proceed on the basis that a request for a bankruptcy notice is   a proceeding.

[26]            The Court retains a discretion as to whether to make a new parties  order.7      A new parties order will not be made if it will lead to an injustice for other parties.

[27]            What Mr Hu could have sought is an order that Mr Lau be substituted for   Mr Hu as judgment creditor in this proceeding. No such application has been made. Had such an application been made, I would not have considered this an appropriate case to make a new parties order. I hold that view for the following reasons:

(1)A new parties order is binding on other parties at the time of service.8 That would mean here that an amended bankruptcy notice would have to be issued naming Mr Lau as the judgment creditor and re-served on Ms Liu. That a new bankruptcy notice will be required means Mr Lau in substance has to start from scratch in any event.

(2)While new parties orders can be made without notice, the making of such an order now would not retrospectively “cure” the bankruptcy notice served which named Mr Hu as creditor.

(3)Ms Liu is entitled to bring a challenge to a new parties order pursuant r 4.53. Whether Mr Lau as an assignee also requires leave to enforce the judgment by way of a bankruptcy notice is open to debate.9

[28]            There is no basis for Ms Liu to be in any way disadvantaged by a situation she has no responsibility for causing.

[29]            Accordingly, I am satisfied that Mr Hu’s application under r 4.56 of the Rules should be dismissed. Even if an order under r 4.56(1)(b) was made, that order would not have a retrospective effect in the sense it would deem the bankruptcy notice to have named Mr Lau as the creditor. At the time the proceeding was commenced,

7      Greening v Ormond [1961] NZLR 965 at [968].

8      High Court Rules 2016, r 4.52(4).

9      Xing v Wang [2023] NZHC 1273 at [24]-[32].

Mr Hu was the only creditor, that is, the only person entitled to request the issue of a bankruptcy notice. No other party needed to be, that is, ought to have been joined to this proceeding at that time. It is Mr Hu who created the present issue when he, for unexplained reasons, after requesting the notice, assigned away the debt and did not seek to apply for an amended bankruptcy notice before it was issued by the Court (there being authority that a bankruptcy notice can be amended before it is issued and served).10

[30]In submissions in reply filed on 9 September 2023, Mr Hu maintained:

In order to complete the bankruptcy notice, both Mr Hu and Mr Lau must be the judgment creditors …

(my emphasis)

[31]            Mr Hu no longer has the status of creditor, the assignment to Mr Lau being absolute. During the hearing, Mr Hu submitted he had not lost the status of judgment creditor. That is not the point, the fact is the judgment debt has, since 6 May 2023, been owed to Mr Lau. Mr Hu is not entitled to enforce that debt whether he was the originally named judgment creditor or not.

[32]            I have already said r 4.56 is not applicable in my view. Further, the form of order sought by Mr Hu is, in any event, inappropriate as it seeks that he continue to be named as a creditor again begging the question of to whom Ms Liu would pay the judgment debt if the order as sought was made. Mr Hu’s application to join Mr Lau as an additional creditor is dismissed.

Conclusion

[33]            If Mr Hu’s bankruptcy notice was valid, there would be no need for Mr Lau to be joined to that proceeding. This is because any creditor can rely on an act of bankruptcy – they need not be the creditor who issued the bankruptcy notice. This means an order under r 4.56 joining Mr Lau to the bankruptcy proceeding would not be required if the bankruptcy notice had been valid.

10     Best v Watson  [1979] 2 NZLR 492 which is also noteworthy as it treats an application for a bankruptcy notice as a proceeding under the Insolvency Act 1967, now the Insolvency Act 2006.

[34]            The bankruptcy notice became invalid because Mr Hu was no longer a creditor to whom the debt could be paid.   That cannot be retrospectively cured by adding   Mr Lau as a creditor now. Even if an order substituting Mr Lau for Mr Hu had been sought, it would still have required the amended notice to be served unless the Court ordered otherwise under r 4.52(3). The application to set aside the bankruptcy notice was not before me but the conclusions I have reached mean that application should be granted if it went to a hearing. Mr Hu and Mr Lau may well consider it a better option to abandon the present bankruptcy notice and have Mr Lau apply for a notice naming him as creditor.

Costs

[35]            There is no reason why costs should not follow the event. Mr Hu is to pay  Ms Liu costs on a 2B basis together with disbursements as fixed by the Registrar.

Associate Judge Lester

Solicitors:
Sam CS Ngu, Auckland

Copy to:
R O Parmenter, Barrister, Auckland