James v Falloon HC Wellington CIV-2011-485-961

[2011] NZHC 1015

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-961

UNDER  the Insolvency Act 2006

IN THE MATTER OF     a bankruptcy notice

BETWEEN  KERRY GILBERT JAMES Applicant

ANDJANE FALLOON Respondent

Hearing:         25 July 2011

Counsel:         C LaHatte for applicant

J A Dean for respondent

Judgment:      26 July 2011

RESERVED JUDGMENT OF DOBSON J

[1]      In this proceeding, Mr James applies to set aside the bankruptcy notice that issued out of this Court on 19 May 2011, in relation to a judgment obtained by Ms Falloon  in  the  Wellington  District  Court  in  July  2009  for  sums  totalling

$125,989.64.

[2]      Subsequent to the entry of the District Court judgment, Ms Falloon pursued an examination of Mr James as the judgment debtor, which was conducted by a Registrar of the District Court at Wellington on 5 October 2010.

[3]      The Registrar’s decision, issued on 21 October 2010, assessed that the debtor should  pay  at  the  rate  of  $20,000  per  annum.    The  first  payment  was  due  on

JAMES v FALLOON HC WN CIV-2011-485-961 26 July 2011

31 January  2011.    No  payment  has  been  made,  and  Ms Falloon  contested  the

Registrar’s decision and sought review of it.

[4]      On 20 May 2011, Judge Tuohy in the Wellington District Court allowed the application for review and set aside the order made by the Registrar in October 2010. The Judge directed that a new order for examination be issued and served on the judgment debtor.  Mr Dean advised that the terms of that order are not available in written form from the District Court, and he is not clear on whether the order for Mr James to appear again for examination has been issued to the Bailiff for service. Certainly, Mr James has not been served.

[5]      In opposition to the present application, Ms Falloon deposed that she has now exhausted her enforcement options in the District Court and seeks to have Mr James adjudicated bankrupt.  She does wish to keep alive the prospect of having Mr James cross-examined, which was not permitted at the first examination.   However, she accepts that she would not pursue any order for payment of the debt by instalments.

[6]      The issue of law arising from these circumstances is whether the prospect of a further examination of Mr James, of itself, constitutes an alternative to bankruptcy so as to render any steps consequent on issue of the bankruptcy notice to be an abuse of the Court’s process.

[7]      If a creditor has an uncompleted execution process at the time a bankruptcy notice is  issued,  the Court  may treat  such circumstances  as  implying  a stay of execution on the judgment for bankruptcy purposes.[1]

[1] Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency: Personal Insolvency

(online looseleaf ed, LexisNexis) at [3.9].

[8]      Here,  both  Messrs  LaHatte  and  Dean  cited  the  decision  in  Telke  v Williamson.[2]    In that case, Master Venning held that an order for payment by instalments (in that case payments were being made in terms of the order) operates as an implied stay of further proceedings by a judgment creditor, and  it is not necessary that a formal order for stay of execution be in place.  It followed, on the

[2] Telke v Williamson (1996) 9 PRNZ 658.

facts in that case, that the judgment creditor could not issue a bankruptcy notice.

[9]      Mr LaHatte argued that a stay ought to arise so long as the prospect of further enforcement steps in another forum remained.  He contended for the prospect that, so long as there might be a further examination by a District Court Registrar, there was a possibility that an order for payment by instalments could be made.

[10]     The part of the Telke judgment Mr Dean relied on was the following:[3]

[3] At 661/27-40.

A judgment creditor is not entitled to issue a bankruptcy notice whilst the instalments continue to be made in accordance with such an order.   The instalment orders are only made after the judgment creditor and judgment debtor have an opportunity to be heard.  If a judgment creditor does not wish to be prevented from exercising his rights to pursue bankruptcy proceedings he or she could ask that an instalment order not be made at the conclusion of the examination.  In that case the examination process would simply be used to ascertain the debtor's financial situation.  If the debt could realistically be paid over a short period of time by instalments the creditor may decide to seek an order for payment by instalments but if, on the other hand, it was apparent at the conclusion of the examination the debt could not realistically be paid over a short period of time then the judgment creditor might decide to pursue bankruptcy proceedings.

[11]     Earlier in his reasoning, Master Venning had observed:[4]

[4] At 661/14-17.

The rationale for the implied stay is that the creditor is deemed to have agreed  with  the  debtor  to  accept  payments  of  the  judgment  debt  by instalment and not to enforce his or her rights to execute the judgment whilst those payments are made.

[12]     The point at which the Court will recognise a material inconsistency between remedies sought, to an extent that an implied stay will arise, was demonstrated in somewhat sharper relief in the decision in Milne v Seretis.[5]    In that case, there had been an order made as a result of examination of the debtor, for payment of the sum by instalments, but the debtor had not made any payments.  Master Faire held that in that situation, the issue of a bankruptcy notice could not constitute an abuse of process of the Court because a judgment creditor could only be said to be relying on an alternative procedure for executing a judgment when payments in accordance

[5] Milne v Seretis (2004) 17 PRNZ 485.

with a Registrar’s order were in fact made.  That decision is also consistent with that

of Eichelbaum J in Re Sturdee (a debtor).[6]

[6] Re Sturdee (a debtor) [1985] 2 NZLR 627 (HC).

[13]     Here, the judgment creditor has rejected the Registrar’s order for payment by instalments.  There is none presently in place.  The prospect of a further examination does not constitute an inconsistent step.   Mr Dean committed Ms Falloon to not seeking any further order for payments by instalment.  I reject as inherently unlikely the prospect that a District Court Registrar would impose an order for payment by instalments over the judgment creditor’s express direction that she did not wish such an order to be made.  Mr Dean accepts that that is the position, and that because of this Court’s reliance on that stance as a ground for dismissing the application to set aside the bankruptcy order, she would be estopped from subsequently doing so.

[14]     Mr Dean  has  explicitly  confined  the  purpose  of  any  further  examination before the Registrar, if one occurs and he is permitted to cross-examine Mr James, to seeking  information  about  the  status  of  assets  apparently  owned  by  a  trust  or Mr James’ partner.  That is not pursuing a step to execute the original District Court judgment which is inconsistent with pursuit of bankruptcy.  Further, the prospect of that step is certainly not a ground for setting aside the initiative towards bankruptcy, represented by the bankruptcy notice.

[15]     I   accordingly   agree   with   Mr Dean   that   the   outcome   in   Telke   is distinguishable,  and  that  the  prospect  of  a  second  examination  does  not  create grounds for a stay.

[16]     For  these  reasons,  I  am  not  persuaded  that  this  is  a  case  in  which  the bankruptcy notice ought to be set aside.

[17]     Ms Falloon is entitled to costs on a 2B basis, on her successful opposition to the present application.

Dobson J

Solicitors:

Mike Garnham, Wellington for applicant

John Dean Law Office, Wellington for respondent