Izard Weston v Ayers

[2017] NZHC 3000

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000200 [2017] NZHC 3000

IN THE MATTER	of the Insolvency Act 2006
AND
IN THE MATTER	of the bankruptcy of DANIEL FRANCIS AYERS
BETWEEN	IZARD WESTON Judgment Creditor
AND	DANIEL FRANCIS AYERS Judgment Debtor

Hearing:	7 November 2017
Appearances:	R K B Stewart for Creditor D F Ayers (Debtor) in person
Judgment:	5 December 2017

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on application to set aside bankruptcy notice]

Introduction

[1]      Izard Weston, a firm of solicitors, acted for Daniel Ayers and his company, Elementary Solutions Ltd (ESL) (now in liquidation), as plaintiffs in defamation proceedings between 2010 and February 2015.   Izard Weston instructed Chris McVeigh QC as counsel. From February 2015, Izard Weston and Mr McVeigh ceased

to act for Mr Ayers and ESL.

IZARD WESTON v AYERS [2017] NZHC 3000 [5 December 2017]

[2]      Later in 2015, Izard Weston sued Mr Ayers and ESL for unpaid fees.  They applied for summary judgment, which the defendants opposed on the grounds that they had a defence and would be filing a counterclaim.

[3]      Following a hearing, District Court Judge R E Neave on 23 August 2016 entered summary judgment for Izard Weston in the sum of $66,916.03.1  Judge Neave subsequently awarded Izard Weston interest of $11,586.56, costs (on the basis of increased costs) of $30,000 and disbursements of $4,691.05.2

The bankruptcy notice

[4]      In March 2017, Izard Weston had a bankruptcy notice issued which required payment of $113,193.64 based on the District Court judgments.  Upon service, Mr Ayers made this application for an order setting aside the bankruptcy notice.

The grounds of Mr Ayers’ application

[5]      Mr Ayers invokes s 17(1)(d) Insolvency Act 2006 (the Act) and the Court’s inherent jurisdiction.

[6]      Mr Ayers asserts:

(a)      he has a genuine triable cross-claim which exceeds the judgment debt and which he could not use as a defence in the District Court proceeding; and

(b)the process by which the District Court judgments were obtained was defective, justifying a stay pursuant to the inherent jurisdiction.

Setting aside application under s 17(1)(d) Insolvency Act

[7]      Section 17(1) of the Act establishes a number of acts of bankruptcy.  Among them, s 17(1)(d) involves non-compliance with a bankruptcy notice. It provides, as an

1      Izard Weston v Ayers [2016] NZDC 14953.

2      Izard Weston v Ayers [2010] NZDC 26070.

alternative to compliance with the requirements of the notice, that the debtor may satisfy the Court that he or she has a cross-claim against the creditor.

[8]      Section 17(7) defines what may constitute a cross-claim for the purposes of s

17(1)(d).  It provides:

17       Failure to comply with bankruptcy notice

…

(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.

[9]      I adopt the following principles in determining whether I am satisfied that, in terms of s 17(1)(d)(ii) of the Act, the debtor has a cross-claim against the creditor:

(a)      The debtor must show they have a genuine triable claim against the creditor.3

(b)The debtor’s inability to use the cross-claim as a defence (required under s 17(7)(b)) is primarily a legal inability.  Factual inability is also available     but     that     requires     some     cogent     circumstance.4

Notwithstanding that the creditor’s original claim is pursued through a summary proceeding, it is open to the defendant in such a proceeding to set up a cross-claim.5

(c)      To  establish  the  required  value  under  s  17(7)(a)  the  debtor  must establish (including where a claim may be for unliquidated damage) a

genuine, triable claim at least to a sufficient extent in monetary terms

3      Sharma v ANZ Banking Group (1992) 6 PRNZ 386 (CA) at 389, approving Clark v UDC Finance

Ltd [1985] 2 NZLR 636 (HC) at 637.

4      Clark v UDC Finance Ltd, above n 3, at 640, applied in Hardie v Booth [1992] 1 NZLR 356 (HC)

at 362.

5      Sharma v ANZ Banking Group, above n 3, at 389.

to bring it somewhere near the equality or excess required under the sub-section.6

The inherent jurisdiction

[10]     The Court may, within its inherent jurisdiction to control abuse of process, set aside a bankruptcy notice. The Court intervenes to avoid a miscarriage of justice. The jurisdiction exists even when relief is unavailable (by reason of the absence of a cross- claim) under s 17(1)(d) of the Act. Master Kennedy-Grant found in Re Wise, ex parte Benecke that grounds for intervention may arise, for instance, where there was a procedural defect in the obtaining of the original judgment or arguable grounds of defence existed at the time judgment was given.7    In such cases, the Court may be justified in adjourning the debtor’s application (on conditions) to check the progress of any relevant appeal or other review procedure, rather than setting aside the bankruptcy notice.8    The observations in Re Wise should be seen in their context, namely a case in which the judgment against the defendant was obtained by default.

[11]     Mr Ayers relied upon (in addition to referring to principles stated above) the proposition that the Courts will more readily set aside bankruptcy notices that are founded on summary judgments.  He did not cite authority for that proposition.  Nor did he develop the proposition further than that bare statement.  As it stands, the proposition is not valid.9    If, in this context, the Court needs to intervene as a matter of inherent jurisdiction, it does so through adjournment of the debtor’s application, not by setting aside the bankruptcy notice.

[12]     If Mr Ayers’ concept of a “more ready setting aside” has validity, it must relate to situations such as the reversal of a judgment on appeal or the setting aside of a judgment as under r 10.9 High Court Rules. The particular fact situations which arise in those contexts may involve events such as may occur where judgment has been

given on summary judgment or following the non-appearance of one party.  Possible

6      Sharma v ANZ Banking Group, above n 3, at 390.

7      Re Wise, ex parte Benecke HC Auckland B227/95, 21 June 1995 at 6.

8      Re Wise, ex parte Benecke, above n 7, at 15; Holmes Construction Wellington Ltd v Rees HC Auckland CIV-2006-404-4219, 9 February 2007 at [33]–[34].

9      Authority exists in relation to judgment obtained by default – see, for instance, Re Reynolds, ex parte Bartlett, [2014] NZHC 447 at [25].

issues may not have been pursued fully or at all at first instance.  The mere fact that a judgment was obtained summarily does not of itself make the setting aside of the bankruptcy notice issued in reliance of that judgment more appropriate. In each case, it is for the debtor to demonstrate that there is good reason to doubt the judgment on which the bankruptcy notice is based.10

Mr Ayers’ case under s 17(1) Insolvency Act 2006

The rationale of a cross-claim

[13]     Mr Ayers deposes that he documented flaws in proprietary computer software in 2009. He published an article concerning the flaws. LexisNexis (NZ) Ltd wrote in response letters which were published.  Mr Ayers called upon LexisNexis to retract statements made and to apologise. When LexisNexis failed to do so, Mr Ayers issued the defamation claim on which he instructed Izard Weston and Mr McVeigh.

[14]     Mr Ayers deposes that, in a series of judgments, the pleadings filed on his behalf were found to be inadequate, particularly in relation to the pleading of ESL’s special damage and general loss of custom.

[15]     Mr Ayers deposes that eventually he and ESL ran out of funds to pursue the litigation, becoming unable to provide security for costs with the consequence that the defamation proceeding remains stayed.

[16]     Mr Ayers deposes that he and ESL had, as a result of their lawyers’ acts and omissions, suffered special damages exceeding $150,000 (comprising fees paid to their lawyers together with adverse costs awards) and the loss of a chance to obtain a judgment against LexisNexis in excess of $500,000.

[17]     The evidence of Mr Ayers in this case on these matters reflects the evidence he adduced in the District Court when defending the summary judgment application and

10     Re Krukziener ex parte Hanover Finance Ltd HC Auckland, CIV-2007-404-2896, 12 August 2008 at [29].

asserting a counterclaim in that jurisdiction.  The materially identical nature of the factual contentions is reflected at an early point in Judge Neave’s judgment:11

In essence, the defendants argue that the advice and representation received from the plaintiff, particularly as it related to the pleading of the claim, was defective and incurred unnecessary expenditure. More specifically, they submit that as a result of the plaintiff's negligence, they were required to be involved in arguments over points which should never have been in dispute and that in effect the outstanding accounts represent wasted expenditure for which the defendants should not be liable. The defendants claim that the arguments in which they became embroiled over whether they ought to have claimed general or special damages and whether sufficient particulars had been provided arose through the plaintiff's negligence.

The critical issue – ability to set up the cross-claim

[18]     I conclude that Mr Ayers does not satisfy the Court that he has a cross-claim against Izard Weston which he could not set up in the District Court proceeding.  I reach that conclusion because Mr Ayers was able both as a matter of law and a matter of fact to set up the cross-claim.  It therefore becomes unnecessary that I determine whether Mr Ayers’ cross-claim is both genuine and triable.

[19]     Mr Ayers responsibly did not contend that he was, as a matter of law, unable to set up the cross-claim. The cross-claim was set up in the District Court (in defence of the summary judgment application) but Mr Ayers failed to establish that he had an arguable cross-claim.12

[20]     Mr Ayers asserts that he was factually unable to set up his cross-claim.

[21]     Mr Ayers deposes to a number of matters of background relevant to what he says was his inability to set up the cross-claim.   He says:

(a)       the legal costs of the defamation proceedings exhausted his financial resources;

(b)he has for some years suffered severe depression which has led to acute situations and hospitalisation (for a short time in November 2013);

11     Izard Weston v Ayers, above n 1, at [6].

12     Izard Weston v Ayers, above n 1, at [43]–[45].

(c)      his ability to work and continue to derive income was greatly affected by health concerns and by proceedings taken by the Commissioner of Inland Revenue against ESL in mid-2013;

(d)as a result of the Commissioner’s proceedings, he was forced to relocate to Christchurch to be in the care of family;

(e)      he has personally had to undertake the defamation litigation (since February 2015), repeated litigation with the Commissioner and, subsequently, Izard Weston’s proceedings;

(f)       for most of 2015 to 2016, he was homeless; and

(g)      his health has remained generally poor but with some improvement in

2017.

[22]     Those are the matters of background which Mr Ayers provides in explanation of what he then submits was his inability to set up his cross-claim in the District Court proceedings.   In his affidavit, he explains that he has continued to research and to prepare a claim against Izard Weston and Mr McVeigh to be filed in the High Court. He deposes that preparing the claim has required detailed research into:

(a)      types of damage (whether special or general) with a focus on general loss of business claims;

(b)      issues in tort (primarily negligence); and

(c)      details of the defamation claim (with time taken to obtain copies of pleadings directly from the High Court).

[23]     Mr Ayers submitted that, on the evidence, it is established that at the time of the District Court proceeding he did not yet sufficiently understand the negligent acts or omissions of Izard Weston and Mr McVeigh so as to be able to formulate his cross- claim. He says he did not have an adequate understanding of relevant and fundamental legal  concepts,  such  as  the  difference  between  general  and  special  damages

(particularly the operation of r 5.33 High Court Rules) and the proper approach of pleading a defamation claim generally.

[24]     On the day of the hearing of this application (7 November 2017), Mr Ayers tendered a further affidavit, the purpose of which was to exhibit a statement of claim which he stated he intended to file.  The statement of claim identifies five causes of action against the lawyers:

(a)      Breach  of  fiduciary  duty  claiming  against  Izard  Weston  equitable damages of $900,000 – the plaintiffs would allege that they had entered into an oral contract of retainer with Izard Weston on 7 July 2010 (“the first retainer”) and that Izard Weston breached their fiduciary duty to the plaintiffs around 20 July 2010 by having the plaintiffs execute a written retainer agreement which gave additional benefits to Izard Weston to the detriment of the plaintiffs in breach of fiduciary duty (“the second retainer”).  The plaintiffs assert that this entitles them to rescission of their contract of retainer (in addition to damages).

(b)Undue influence – as an alternative cause of action, the plaintiffs would plead that the entry into the second retainer involved undue influence on the part of Izard Weston, again entitling the plaintiffs to rescission and equitable damages.

(c)      Mr McVeigh’s negligence – the plaintiffs would allege against Mr McVeigh negligence in having the plaintiffs immediately issue defamation proceedings in 2010 (not relevant here).

(d)Mr McVeigh’s negligence – the plaintiffs would allege negligence on the part of Mr McVeigh for deficiencies of pleading (not relevant here).

(e)      Izard Weston’s negligence – the plaintiffs would allege negligence against Izard Weston for failings in their pleadings, claiming damages of $900,000.

[25]     In the statement of claim, the damages are now particularised as comprising:

(a)       $658,208 for loss of the chance to conclude the defamation claim;

(b)      $184,846.61 being wasted costs; and

(c)       unquantified wasted executive time from 2010 – 2015.

In the statement of claim, Mr Ayers also seeks unquantified general damages for distress and anguish.

Discussion – rescission

[26]     Izard Weston sued Mr Ayers and ESL on the second (written) retainer.13  Were Mr Ayers to defend the Izard Weston claim for fees again, he would be asserting as a ground of defence that he is entitled to rescission of the second retainer leaving extant the first (oral) retainer (which Mr Ayers asserts to be an entire contract).

[27]     Mr Ayers would allege under his first two causes of action (effectively in the nature of a defence to Izard Weston’s claim for fees) that the contract on which he is suing (the second retainer) should in equity be rescinded for breach of fiduciary duty or undue influence.  In that central regard, it is not a cross-claim (for an amount of money) as identified in s 17(1)(7) Insolvency Act.

[28]     Section 17(1)(d) does not entitle the Court to set aside a bankruptcy notice where the argument is that the debtor had a defence to the original claims (rather than a cross-claim).

Discussion – cross-claim for damages in negligence

[29]     The claim which Mr Ayers through his fifth cause of action would now pursue against Izard Weston is for damages ($900,000) for the lawyers’ failures of pleading (covering failures both to understand the law and to adequately draft the statement of

claim in the defamation proceedings).

13     See above at [24](a).

[30]     Mr Ayers submitted that there was one legal impediment to his presenting his damages claim in negligence as a cross-claim in the District Court. He submitted that the cross-claim (which he now quantifies at $900,000) was legally precluded by reason of the limit of the civil jurisdiction of the District Court.14    Contrary to Mr Ayers’ submission, the limited jurisdiction does not act as a bar to a defendant’s setting up a cross-claim beyond the District Court jurisdiction.  Such a defendant is entitled to apply for a transfer of the proceeding to the High Court.

[31]     For the most part, Mr Ayers focused his submissions on a factual inability to set up his cross-claim.

[32] Mr Ayers relied first on his personal circumstances, (of health, finances and pressures) which were the subject of his evidence as summarised at [21] above.

Mr Ayers submitted that given those personal difficulties he was unable to understand and appreciate the proper basis of the cross-claim he had against Izard Weston, both as to causes of action and rights of damages (general or special). He says that he was also unable to articulate and present his cross-claim. Mr Ayers notes that he was self- represented in the District Court and he states that he had little experience of defended interlocutory applications or the summary judgment procedure.

[33]     Mr Ayers referred to the judgment of the Court of Appeal in Robertson v ASB Bank Ltd.15   In that case, an Associate Judge had refused an application for an order setting aside bankruptcy notices.16   The Court of Appeal allowed the appeal and set aside the bankruptcy notices. The appellants were self-represented.  Mr Ayers placed reliance particularly on observations of Heath J, delivering the judgment of the Court, when his Honour observed:17

Not infrequently, lay litigants do not realise the importance of evidence that has not been put before the Court. Further, it is self-evident that Judges do not know what relevant evidence may exist.

14     At the time $200,000 – s 29 District Court Act 1947.

15     Robertson v ASB Bank Ltd [2014] NZCA 597.

16     ASB Bank Ltd v Robertson [2013] NZHC 2125.

17     Robertson v ASB Bank Ltd, above n 15, at [11](b).

[34]     That passage, however, must be read in context.  The appellants had, before the hearing of their setting aside applications, had legal applications refused. Following an appeal, their application for legal aid was being reconsidered.   The Associate Judge declined an application for adjournment. The Court of Appeal found that the grounds for opposing the adjournment were not compelling.18  In reaching that conclusion, the Court of Appeal observed:19

The adversarial system is premised on the expectation of competent presentation of the arguments for each party, usually by counsel instructed to act. In almost all cases, despite the obvious disadvantages that flow from it, a court is obliged to hear and determine (as best it can) cases involving an unrepresented litigant. But, the position is different when the court is aware that the self-represented litigant has successfully challenged a refusal to grant

legal aid and the question of eligibility has been remitted to the decision maker for reconsideration. In such circumstances, in the absence of a specific and

material prejudice to an opponent, it will generally be preferable to adjourn so

that the litigant has the opportunity to take advantage of the decision made in his or her favour. That is particularly so when a decision directing reconsideration is made in close proximity to the proposed hearing date.

[35]     The present case does not involve the “different position” identified by the Court of Appeal in Robertson v ASB Bank Ltd.  Rather, this case is in that category of “almost all cases” where, despite the obvious disadvantage that flows from self- representation, a Court is able to hear and determine as best it can the case before it.

[36]     The determination which the Court is required to make under s 17(1)(d) of the Act, as invoked by Mr Ayers, is whether Mr Ayers has established that he was factually unable to set up his cross-claim.  His self-representation may be taken into account in that consideration but, as reflected in the reasoning in Robertson v ASB Bank Ltd, self- representation by itself does not equate to an inability to present one’s case.

[37]     In opposing Mr Ayers’ application, Izard Weston denies that Mr Ayers had been factually unable to set up his cross-claims.   Izard Weston’s notice of opposition asserted that, to the contrary, Mr Ayers had put the substance of his claims before the

District Court (prior to that Court concluding that his cross-claims were not arguable).

18     Robertson v ASB Bank Ltd, above n 15, at [11](d).

19     Robertson v ASB Bank Ltd, above n 15, at [11](c).

[38]     Izard Weston referred to the documents which Mr Ayers filed in the District Court proceeding. Mr Ayers filed a notice of opposition on behalf of himself and ESL on 8 December 2015.  He recorded that the defendants had a defence and would be filing a counterclaim.   The defence was outlined by Mr Ayers in a 44–paragraph affidavit in which he identified defences based on the lawyers’ breaches of contract and negligence in the performance of services.  He recorded that these gave rise to a counterclaim.    For  the  hearing,  Mr Ayers  provided  a  63–paragraph  synopsis  of argument which explored in detail the allegations that Izard Weston and Mr McVeigh had been negligent in the conduct of the defamation proceeding. Although Mr Ayers had stated that a counterclaim would be filed, none was filed.

[39]     In considering this ground of inability as asserted by Mr Ayers, I remind myself that the inability referred to in s 17(1)(7)(b) is primarily a legal inability.20  I adopt the observation of Tipping J in Hardie v Booth that while factual inability is available, it requires some cogent circumstance.21  Also instructive, is the observation (adopted by Tipping J) of Lukin J in Re Stokvis that:22

Mere failure to take advantage of the opportunity [in the proceeding in which the judgment was obtained] can hardly be said to be inability.

[40]     This approach was adopted by Casey J in Clark v UDC Finance Ltd.   His

Honour continued:23

There may be room for some added qualification of a practical nature in the comment by Lukin J about “mere failure” to take advantage of the opportunity, implying that a failure may be justified if it is due, for example, to supervening circumstances making it factually impossible for the debtor to do anything about the claim at that time. But the primary emphasis on the legal nature of the impediment suggests that such other reasons must be carefully scrutinised, and certainly simple neglect to take even the elementary step of seeking further information or advice cannot avail the debtor.

[41]     For Izard Weston, Mr Stewart emphasised that Mr Ayers not only had but took the opportunity in the District Court to present his breach of contract and negligence

arguments as defences and matters of counterclaim.  His health and pressures did not

20     See above at [9](b).

21     Hardie v Booth, above n 4, at 362.

22     Re Stokvis (1934) 7 ABC 53; adopted in Re Brink, ex parte Commercial Banking Co of Sydney Ltd

(1980) 30 ALR 433 at 437 and in Clark v UDC Finance Ltd, above n 3, at 639.

23     Clark v UDC Finance Ltd, above n 3, at 640.

prevent him from filing appropriate and detailed documents, including evidence and submissions. The circumstance which faced him was not one of inability to set up the basis of a cross-claim but rather a failure to present it with the same detail and analysis as the more complex and nuanced pleading of his draft statement of claim would now identify.

[42]     Mr Ayers accepted that, on the authorities, mere failure to take advantage of an opportunity will not establish under s 17(7)(b) of the Act that the debtor could not use that cross-claim as a defence.  Mr Ayers identified a two-fold policy underlying the court’s approach namely:

(a)       to strongly encourage parties to put all issues before the Court at one time; and

(b)to prevent a situation in which a defendant strategically withholds cross-claims.

Mr Ayers submitted that a distinction is to be drawn between the defendant who chooses not to set up a cross-claim or slackly ignores the possibility of doing so (who should not be able to rely on s 17 of the Act) and the defendant for whom it is simply not possible to set up the cross-claim (who should be able to invoke s 17(1)(d) of the Act).

[43]     Mr Ayers submitted that his conduct does not fall within the first category of choosing not to assert his cross-claim or slackly ignoring it.

[44]     Careful  scrutiny  of  Mr Ayers’ conduct  at  the  time  of  the  District  Court proceeding – having regard particularly to the matters identified by Mr Stewart (above at [41]) – precludes a finding that Mr Ayers was factually unable to set up his cross- claim. The nature of his grievance against Izard Weston remains in the draft statement of claim substantially as it was at the time of the District Court proceeding.   His complaint in essence is that Izard Weston (with Mr McVeigh) were negligent in representing him in the defamation proceedings. It was not only possible for Mr Ayers to set up the cross-claim in the District Court proceedings, he in fact did so, albeit

unsuccessfully.  The fact that Mr Ayers may now consider that his cross-claim could have been asserted with different particulars and analysis and in a more cogent manner does not alter the real nature of the opportunity which Mr Ayers had (and took) to present his cross-claim.

[45]     To the extent Mr Ayers’ application for an order setting aside the bankruptcy notice rests on s 17(1) of the Act, it must fail.

[46]     It becomes unnecessary that I consider Mr Stewart’s alternative submission that the Court should be satisfied on the evidence that Mr Ayers does not genuinely intend to pursue his cross-claim.  Mr Stewart referred to the fact that Mr Ayers had provided the draft of his claim only on the day of this hearing.  Given that his District Court notice of opposition (8 December 2015) had stated that he and ESL would be filing a counterclaim against Izard Weston and that no claim at all was filed in the subsequent period, Izard Weston is entitled to question the genuineness of the statement (contained in Mr Ayers’s exhibiting affidavit of 7 November 2017 in parallel with his December 2015 statement) that he intends to commence and pursue the new proceeding as soon as possible.

[47]     Having regard to my other findings, I refrain from reaching a determination of this aspect of the argument.

Discussion – the inherent jurisdiction

[48]     Mr Ayers submitted that the summary judgment proceeding by which Izard Weston obtained its judgment was defective.  He submitted this justified the Court’s setting aside the bankruptcy notice pursuant to its inherent jurisdiction.

[49]     This submission as to a defect is unfounded.  Izard Weston, as plaintiff, was required by r 12.4(5) High Court Rules to verify the allegations in its statement of claim and to have its deponent depose to the belief that ESL and Mr Ayers had no defence to the allegations and to set out grounds of that belief. That is what was done. The supporting affidavit exhibited an eight page letter written by Mr Ayers to Mr McVeigh on 10 February 2015 in which Mr Ayers analysed the performance of both Mr McVeigh and Izard Weston in relation to the conduct of the defamation proceeding.

Mr Ayers  suggested  that  counsel  had  breached  their  fiduciary  duties  and  other obligations to ESL and Mr Ayers through not protecting their interests on the best terms practicable and with minimal legal costs.     He suggested that they had negligently breached their duty of care to him in relation to matters of pleadings, particularly of special damage and a general loss of custom.  He suggested also that they had breached the Rules of Conduct and the Client Care for Lawyers.   He expressed his disagreement with the total of fees charged, stating that the fees already paid were more than fair and reasonable to that point.

[50]     The plaintiff’s supporting affidavit exhibited the detailed responses sent to Mr Ayers. The affidavit, in its narrative, explained (as required by the High Court Rules) the reason for the belief that ESL and Mr Ayers had no defence.

[51]     This was not a summary judgment application supported by a bland rejection of a defendant’s arguments. Mr Ayers’ arguments were identified by Izard Weston and were responded to in detail.  The appropriateness of the response is reinforced by the conclusions reached by Judge Neave in granting the Izard Weston summary judgment application.

[52]     Mr Ayers has not established a defect in the summary judgment procedure itself.

[53]     In his synopsis, Mr Ayers invoked the inherent jurisdiction on two further, linked bases. He submitted that the District Court judgment was “plainly wrong” and stated that the judgment is “under appeal”.  In fact the judgment is not under appeal, nor was it under appeal when Mr Ayers filed his synopsis.  Mr Ayers had not taken steps to appeal within time.  Shortly before this hearing he filed an application for leave to appeal out of time. At that time, the summary judgment had stood unchallenged for 15 months.

[54]     In itself, that is sufficient to dispose of the appeal to the Court’s inherent jurisdiction.  Mr Ayers had the opportunity to establish arguable grounds of defence or cross-claim in 2016. The District Court Judge gave a reasoned judgment following argument. As Judge Neave observed in that judgment, the consequence of Mr Ayers’

not establishing an arguable cross-claim at that point did not preclude his raising the claims separately as a counterclaim at a later point if he wished to do so.24  He did not thereafter (until very recently) take steps either in relation to a possible appeal or in relation to proceedings to establish a cross-claim.  Contrary to Mr Ayers’ submission, there is no miscarriage of justice in the Court’s now holding Mr Ayers to the (summary judgment) conclusion that he was unable to establish an arguable cross-claim.

[55]     I adopt the parallel conclusion which I reached in Minter Ellison Rudd Watts v Hampton.25     In that case the judgment debt had similarly arisen through an opposed summary judgment application.  An Associate Judge had found that the cross-claim was not of true substance.  I applied principles of res judicata.     I held that it was reasonable in the circumstances to regard the earlier decision as a final determination of the issue which the debtor again wished to raise in seeking to have a bankruptcy notice set aside, namely whether he had an arguable cross-claim. As I stated:26

[the debtor] now wishes to pursue a stand-alone claim independently of this proceeding by issuing a claim (rather than by seeking to defeat his creditor’s enforcement in a summary context) he has that entitlement – what would be unreasonable is if the Court were to allow him to revisit the arguability issue in the context of the creditor’s enforcement of the judgment which was obtained through Minter Ellison satisfying the Court that Mr Hampton’s cross- claim was not arguable.

[56]     There will not be a miscarriage of justice, in this regard, if Izard Weston is allowed to rely on the 2016 judgments to support their bankruptcy notice.

[57]     In his synopsis, Mr Ayers invoked the inherent jurisdiction on one further ground.  Mr Ayers recorded the matter thus:

Following the decision of the Court of Appeal in Joint Action Funding Limited v Eichelbaum27  that solicitor-litigants are not entitled to recover costs, and because judgments cannot be divided, the summary judgment is no longer enforceable as it includes an award of $30,000 in costs to Izard Weston when acting in person.

[58]     Mr Ayers records that this is also to be a further ground of his intended appeal.

24     Izard Weston v Ayers, above n 1, at [44].

25     Minter Ellison Rudd Watts v Hampton [2012] NZHC 1715.

26     Minter Ellison Rudd Watts v Hampton, above n 25, at [45].

27     Joint Action Funding Limited v Eichelbaum [2017] NZCA 249.

[59]     This is not a valid ground on which to invoke the inherent jurisdiction to set aside the bankruptcy notice. The District Court correctly awarded costs at the time as it was bound to do by existing Court of Appeal authority.28  The over-ruling of previous authority does not affect the validity of the costs awards in innumerable cases made before the decision in Joint Action Funding.  It was for the unsuccessful parties in those earlier cases to settle the judgment debts they had incurred or to appeal the judgments which created them. Mr Ayers did not appeal that outcome at the time. He only now seeks, belatedly, to add it as a ground for impeaching the judgments against him.

[60]     There is no injustice in upholding the bankruptcy notice.  Mr Ayers allowed the 2016 judgments to stand for 15 months without appeal.  The fact that Mr Ayers seeks leave, in reliance on Joint Action Funding, to appeal the cost awards out of time, is but the first (albeit very late) step in what would be a lengthy process. Justice would miscarry not by allowing Mr Ayers additional time but rather by denying Izard Weston the evidential route available under s 17(1) towards establishing Mr Ayers’ insolvency by reference to the judgment debt.

Order:

[61]     I order:

(a)       The application  for  an  order setting aside  the  judgment  creditor’s bankruptcy notice is dismissed.

(b)      The judgment debtor is to pay the judgment creditor’s costs on a 2B

basis together with disbursements to be fixed by the Registrar.

Associate Judge Osborne

Solicitors:

28     See Brownie Wills v Shrimpton [1998] 2 NZLR 320 (CA).

Izard Weston, Christchurch

Copy to: D F Ayers, Christchurch