Jacomb v Wikeley
[2013] NZHC 3368
•13 December 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
IN BANKRUPTCY
CIV-2013-485-3414 [2013] NZHC 3368
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of KENNETH DAVID WIKELEY
BETWEEN
MICHAEL JOHN JACOMB, TRENA KATHLEEN JACOMB AND PETER REGINALD RICHARDSON Judgment Creditors
AND
KENNETH DAVID WIKELEY Judgment Debtor
Hearing: 13 December 2013 Counsel:
J Toebes for Judgment Creditors
A Sorrell for Judgment DebtorJudgment:
13 December 2013
JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 13 December 2013 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
JT Law, Wellington for Judgment Creditors
Jones Young, Auckland for Judgment Debtor
JACOMB v WIKELEY [2013] NZHC 3368 [13 December 2013]
[1] Mr Wikeley has appealed against my decision of 14 November 2013 dismissing his application to set aside the bankruptcy notice. Since that decision, the judgment creditors have filed an adjudication application. The act of bankruptcy they rely on is Mr Wikeley’s non-compliance with the bankruptcy notice served on him. The bankruptcy notice identified two separate sums payable under the judgment of Kós J of 10 April 2013: US$875,768.42 and NZ$48,130.18. The US$875,768.42 was the amount payable under a guarantee that Mr Wikeley had given, plus interest. The NZ$48,130.18 was the costs payable in the proceeding in which Kós J gave judgment.
[2] In my decision dismissing the application to set aside the bankruptcy notice I
awarded the creditors costs. So far costs have not been fixed.
[3] Mr Wikeley has applied for a halt of the bankruptcy application under s 38 of the Insolvency Act 2006 and for a stay under r 20.10 of the High Court Rules.1 The grounds of the application for the halt and stay are that, if the bankruptcy application is not halted, Mr Wikeley will be declared bankrupt before his appeal can be heard and that would render nugatory his right of appeal. The application also states that Edel Metals Group Limited is to shortly issue proceedings against the creditors for not having met the call on them for unpaid share capital. If Edel Metals Group Limited is successful in that proceeding, that would extinguish the debt owing by
Edel Metals Group Limited to the creditors, which Mr Wikeley guaranteed in part. The effect of a successful judgment for Edel Metals Group Limited against the judgment creditors would extinguish Mr Wikeley’s liability under the judgment of Kós J.
[4] The grounds of Mr Wikeley’s appeal to the Court of Appeal are:
(i)that I was wrong to find that a claim against the principal debtor, Edel Metals Group Limited, under s 174 of the Companies Act 1993 was bound to result in relief; and
(ii) that I was wrong to find that if such relief were granted, it would make
Mr Wikeley’s set off argument ineffective.
[5] Mr Wikeley applies for the stay under r 20.10 of the High Court Rules. That is not the correct rule for a stay on an appeal from this court to the Court of Appeal. Part 20 of the High Court Rules applies to appeals to the High Court, not appeals from the High Court.2 The rule governing stays when there is an appeal from this court to the Court of Appeal is r 12 of the Court of Appeal (Civil) Rules 2005.
[6] Mr Wikeley asks this court not to decide the bankruptcy application before his appeal can be heard. That is interim relief that can be given under r 12(3)(b) of the Court of Appeal (Civil) Rules and on a halt application under s 38 of the Insolvency Act 2006. Many halt applications under s 38 are made on the basis of a pending appeal to the Court of Appeal.
[7] Rule 12(3) of the Court of Appeal (Civil) Rules says:
Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—
(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b) grant any interim relief.
[8] The present application does not come under r 12(3)(a). Mr Wikeley’s application was to set aside the bankruptcy notice. There was no other proceeding in this court. My decision dismissing his application to set aside was the final step in that proceeding, barring the fixing of costs. Barring that costs issue, there is no proceeding to be stayed. The creditors’ bankruptcy application is a fresh proceeding, which was started after my decision of 14 November 2013. The only execution that could be stayed is enforcement of an order for costs after costs are fixed, but that is not the target of Mr Wikeley’s application.
[9] On applications for relief pending appeal, it is common to cite the dictum of
Buckley LJ in Minnesota Mining and Manufacturing Co v Johnson and Johnson:3
The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appeal court may be able to do justice between the parties, whatever the outcome of the appeal may be.
[10] The Court of Appeal has recognised that factors taken into account in this balancing exercise include:4
(i) whether the appeal may be rendered nugatory by the lack of stay; (ii) the bona fides of the applicant as to the prosecution of the appeal; (iii) whether the successful party will be injuriously affected by the stay; (iv) the effect on third parties;
(v) the novelty and importance the of questions involved; (vi) the public interest in the proceeding;
(vii) the overall balance of justice; and
(viii) the apparent strength of the appeal.
[11] Mr Sorrell submitted that the application could be considered in the same way as applications for a halt under s 42 of the Insolvency Act:
Halt or refusal of application when judgment under appeal
(1) This section applies if the creditor's application for adjudication relies on one of the following acts of bankruptcy:
(a) the debtor failed to comply with a bankruptcy notice (see
section 17).
3 Minnesota Mining and Manufacturing Co v Johnson and Johnson [1976] RPC 671 [1976] FSR
139.
4 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 at [9];
and Keung v GBR Investment Ltd [2010] NZCA 396 at [11].
(b) a judgment against the debtor for non-payment of trust money is not satisfied within 5 working days after the date of the judgment (see section 28).
(2) If the debtor has appealed against the judgment or order underlying the bankruptcy notice or the judgment for non-payment of trust money, as the case may be, and the appeal is still to be decided, then the court may—
(a) halt the creditor's application for adjudication; or
(b) refuse the application.
[12] This case does not directly come within s 42 – the appeal in this case is from a judgment refusing to set aside a bankruptcy notice, not from the judgment on which the bankruptcy notice is based. But I accept that cases under s 42 can be referred to by analogy to guide the court’s decision under s 38 when an appeal is pending. Cases Mr Sorrel referred to included Re Pillay ex parte ANZ National
Bank Ltd and Re Wright ex parte Health Distributors Ltd.5 Those cases show that
the court deals with halt applications by applying guidelines and principles analogous to those used on applications under r 12(3) of the Court of Appeal (Civil) Rules. I also accept Mr Sorrell’s submission that on a halt application, the court is not required to run a mini trial as to the merits of the appeal.6 It is sufficient that it is not unarguable or doomed to fail.
[13] It is helpful to consider what Mr Wikeley could achieve if his appeal is successful. In short, even if he is able to show that I was wrong to find that the bankruptcy notice was sound as to the sum of US$875,768.42, the Court of Appeal will not set aside the bankruptcy notice. In their bankruptcy application the creditors will still be able to rely on an act of bankruptcy under s 17 of the Insolvency Act. The appeal may still serve a useful purpose as it will establish whether and to what extent the creditors will be able to rely on the judgment debt for US$875,768.42.
[14] When Mr Wikeley filed his application to set aside the bankruptcy notice, the time for complying with the notice was extended until the application was
5 Re Pillay ex parte ANZ National Bank Ltd (HC Auckland CIV 2009-404-4175), 3 December
2009 and Re Wright ex parte Health Distributors Ltd HC Hamilton CIV 2010-419-121
5 November 2010.
6 He cited Re a debtor (No 799 of 1994) ex parte Cobbs Property Services Ltd [1995] 3 All ER
723.
determined. Until it was determined, Mr Wikeley did not commit any act of bankruptcy.7 Once I dismissed his setting aside application, the time for complying with the notice came to an end.8 Mr Wikeley committed an act of bankruptcy under s 17 of the Insolvency Act.
[15] An appeal by a debtor against a decision dismissing an application to set aside is by way of rehearing.9 The Court of Appeal may make any order which this court ought to have given or made and may make any further or other orders that the case may require.10 Accordingly, the Court of Appeal has the power to set aside a bankruptcy notice on hearing an appeal. If the bankruptcy notice is entirely set aside on appeal, the creditor would no longer be able to rely on the act of bankruptcy under s 17 of the Insolvency Act as a ground for an adjudication application.
[16] At the hearing of the setting aside application, Mr Wikeley contended that his argument as to set off applied to extinguish his liability for US$875,768.42, but he accepted that it did not extend to his liability for NZ$48,130.18 plus interest under Kós J’s order for costs. He accepted that he was liable to pay the costs order. Instead, he tried to tag his liability for that sum with a condition that the judgment creditors transfer back to him shares in Orion Minerals Group Limited. I gave no ruling on the transfer back of those shares, because I held that payment of the costs order would not satisfy Mr Wikeley’s entire liability under the judgment of Kós J.
[17] In his appeal, Mr Wikeley is only attacking findings I made for the US$875,768.42. He is not attacking that part of the judgment where I refused to set aside the bankruptcy notice relating to the order for costs made by Justice Kós. The best that Mr Wikeley could hope for on appeal is that the Court of Appeal would hold that I erred in my judgment on the US$875,768.42 part of the bankruptcy
notice. The Court of Appeal might then set aside that part of the bankruptcy notice
7 High Court Rules, r 24.10.
8 The Insolvency Act does not have any provision equivalent to s 291 of the Companies Act 1993, under which the court can set further time for payment after dismissing an application to set
aside a statutory demand. See Alexander v S H Lock (NZ) Ltd (1998) 12 PRNZ 249 citing Re Scott ex parte ANZ Banking Group (NZ) Ltd HC Rotorua B113/89, 15 September 1989 and Re Dillon ex party Blueprint Developments Ltd HC Auckland, B2164/89, 27 March 1990.
9 Court of Appeal (Civil) Rules, r 47.
10 Court of Appeal (Civil) Rules, r 48(4).
relating to the US$875,768.42,11 but it would not set aside the rest of the bankruptcy notice. The notice would have overstated the judgment debt but the overstatement of a sum in a bankruptcy notice does not invalidate the notice. Section 30 of the Insolvency Act 2006 provides:
Effect of overstatement of amount owing
(1) Overstatement in a bankruptcy notice of the amount owing by the debtor does not invalidate the notice, unless—
(a) the debtor notifies the creditor that the debtor disputes the validity of the notice because it overstates the amount owing; and
(b) the debtor makes that notification within the time specified in the notice for the debtor to comply with the notice.
(2) A debtor complies with a notice that overstates the amount owing by—
(a) taking steps that would have been compliance with the notice had it stated the correct amount owing (for example, by paying the creditor the correct amount owing plus costs); and
(b) taking those steps within the time specified in the notice for the debtor to comply.
[18] Mr Wikeley did not pay the judgment creditors the amount of the costs order of Kós J within the time allowed in the bankruptcy notice, nor within the extension of time under r 24.10. He did not take any other steps in time to comply with the notice. He therefore did not satisfy the requirements of s 30(2). He accordingly committed an act of bankruptcy under s 17 of the Insolvency Act. Because his appeal will not get rid of the bankruptcy notice altogether, even if he is successful, he will not be able to undo the act of bankruptcy. Even if his appeal is successful, the creditors will be able to continue their application on the basis that they are his creditors for at least the amount of Kós J’s costs order and that Mr Wikeley has committed an act of bankruptcy.
[19] That does not mean that Mr Wikeley’s appeal will not serve a useful purpose.
The debts the judgment creditors rely on in their bankruptcy application are the full amounts payable under the judgment of Kós J. If Mr Wikeley intends to oppose the
11 Insolvency Act 2006, s 418(2).
application on the grounds that he is not indebted to the creditors for US$875,768.42, the amount owing under the guarantee on which he was sued, he may be faced with an issue estoppel argument that that question has already been conclusively decided against him. To avoid that argument, his remedy is to appeal my decision. The appeal is not moot.
[20] It is against that background that his application for a halt under s 38 of the Insolvency Act and for interim relief under r 12(3)(b) of the Court of Appeal (Civil) Rules can be considered.
[21] Some matters can be put to one side. There is no question of effect on third parties. The appeal does not raise any issues of novelty or importance (other than to the parties themselves). Mr Sorrell submitted that there could be some value in obtaining the views of the Court of Appeal on Mr Wikeley’s set off argument. In my judgment I applied settled principles on the discharge of a guarantee by a claim available to the principal debtor. There was no real dispute as to these principles. Mr Wikeley asked me to follow them and the creditors did not dispute them. There are no public interest issues in this proceeding.
[22] As to the merits of the appeal, as the judge who gave the decision at first instance, I acknowledge the possibility of error. Mr Wikeley’s best hope might be to persuade the Court of Appeal that my decision that any claim by Edel Metals Group Limited against the judgment creditors was bound to fail (as the judgment creditors would be bound to succeed on any counterclaim for relief under s 174 of the Companies Act) is not appropriate for a setting aside application, but should go to a full hearing. That may be an arguable appeal point. I cannot say that the appeal is doomed to fail.
[23] In response Mr Toebes referred to evidence that I had not taken note of in my setting aside decision to say that the appeal had no merit. To engage with that submission would lead to the kind of mini trial which I ought to avoid.
[24] The creditors have got their bankruptcy application under way promptly. They are well within the three month time limit under s 13(b) of the Insolvency Act.
The prejudice they face if interim relief is granted is that they may have to wait for Mr Wikeley’s appeal to be decided before this court can decide their bankruptcy application.
[25] Mr Sorrell submitted that Mr Wikeley’s appeal will be made nugatory if the creditors are able to continue their bankruptcy application. Mr Wikeley would not be able to continue his appeal if he is adjudicated bankrupt. That overstates the position. There will be no injustice to Mr Wikeley if he is adjudicated bankrupt as a result of not paying the costs part of the judgment debt. His argument counts only to the extent that the creditors rely on the US$875,768.42 part of the judgment debt.
[26] Mr Toebes submitted that a halt should be on the standard terms for a stay pending an appeal from a money judgment, that is, that the bankruptcy application should be stayed only on Mr Wikeley paying the full sum due under the judgment of Kós J and the judgment creditors giving an appropriate assurance as to repayment if
the appeal succeeds.12 That approach applies where all that is in issue is payment
under a money judgment. Bankruptcy proceedings involve more – a change of status. As it appears that Mr Wikeley does not have the funds to pay the entire judgment sum, allowing the bankruptcy application could have an irreversible effect.
[27] For both sides it will be important in the bankruptcy application to know the status of the judgment debt for US$875,768.42. While the creditors’ case is that they have a final judgment for that sum and execution has not been stayed, Mr Wikeley’s case will be that the judgment liability is defeasible on account of Edel’s proposed proceeding against the creditors. A decision of the Court of Appeal is required to answer that matter. On the other hand that Court is not required to address Mr Wikeley’s liability for the costs order of Kós J.
[28] There is no reason why the judgment creditors cannot continue with their application relying on that costs order. Their right to rely on that part of the judgment debt will not be affected by the outcome of Mr Wikeley’s appeal. Accordingly, any interim relief ought to be tailored so as not to stand in the way of
the creditors’ right to rely on the costs order.
12 For example, McLeod v New Zealand Pine Co Ltd (1892) 11 NZLR 493.
[29] One of the factors is Mr Wikeley’s good faith in pursuing the appeal. The question here is whether the appeal is being run simply as a stalling device to delay an inevitable bankruptcy. There are grounds to be suspicious:
(a) He has a history of earlier financial failures and association with failed companies.13
(b) Kós J did not find him a reliable witness.14
(c) Kós J did not find any merit in his defences, but Mr Wikeley used the legal process to delay the time before he was found liable. The guarantee proceeding was started in 2010, but judgment was not given until 2013.
(d)Mr Wikeley does not appear to have any fixed base. He has recently spent time in the state of Kentucky, United States of America. There is no evidence that he has established a permanent residence or domicile there. He has also spent time in Melbourne, Australia and in Chile. Until the hearing of this application his present whereabouts were unknown.
(e) I found that Edel Metals Group Ltd’s call on the shares was nothing more than a contrivance to beat the creditors’ judgment.
(f) There is no evidence that Mr Wikeley has the means to meet the judgment debt. To the contrary, in this application he says that if the bankruptcy application is allowed to run, he will be made bankrupt.
[30] There is sufficient evidence to be suspicious as to Mr Wikeley’s motives for pursuing his appeal. One way for Mr Wikeley to show his genuineness in pursuing the appeal would be to allay suspicions that the appeal is no more than a stalling device to defeat and delay his creditors. At an earlier telephone conference I raised
with Mr Sorrell whether Mr Wikeley would disclose his current address. In this
13 Jacomb v Wikeley [2013] NZHC 707 at [5]-[6], Hope affidavit, paragraph 7.
14 Jacomb v Wikeley [2013] NZHC 707 at [13].
hearing, Mr Sorrell did disclose it: 369 West Vine Street, Lexington 40507, Kentucky, United States of America.
[31] Mr Wikeley will need to pursue his appeal promptly. Once an act of bankruptcy has occurred, it is desirable that a bankruptcy application be decided without delay. That can be seen in the requirement under s 13 of the Insolvency Act that an application be filed within three months of the act of bankruptcy. It needs to be remembered that the two year period for insolvent transactions, charges and gifts runs from two years before Mr Wikeley was served with the bankruptcy
application.15 He was served on 28 November 2013. Delay in determining the
appeal may extend that two period unduly. Mr Sorrell advises that he has applied to fast-track the appeal.
[32] I am satisfied that there is a basis for interim relief pending the appeal, but conditions are required to achieve a balance between both sides. I grant interim relief under r 12 of the Court of Appeal (Civil) Rules and order a halt under the Insolvency Act as follows:
(a) there will be a halt of the bankruptcy application when Mr Wikeley pays to the judgment creditors the costs ordered by Justice Kós plus interest on that sum - $48,130.18;
(b)the halt will cease to apply if Mr Wikeley changes his address and does not advise the court and the judgment creditors of his new address;
(c) it is a condition of the halt that Mr Wikeley pursue his appeal promptly;
(d)leave is reserved to the parties to apply to the court for a review of the halt or of these conditions, in particular in the light of any decision given by the Court of Appeal on the hearing of the appeal, or upon
any failure by Mr Wikeley to pursue his appeal promptly.
15 Insolvency Act 2006, ss 193-204.
[33] The judgment creditors may seal costs on the application to set aside the bankruptcy notice and may enforce that costs order. This decision does not bar that right. There is no reason to stay execution of the costs order.
...........................................
Associate Judge R M Bell
3
2
1