Kim v Mao

[2023] NZHC 3671

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1881

[2023] NZHC 3671

UNDER

the Insolvency Act 2006

IN THE MATTER OF

of the bankruptcy of JIAWEN MAO

BETWEEN

HYUN BIN KIM and DUK YOUNG LEE

Plaintiff

AND

JIAWEN MAO

Defendant

Hearing:	12 December 2023
Counsel:	C Fourie/S Cartwright for Judgment Creditors D Zhang for Judgment Debtor
Date of Judgment:	13 December 2023

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 13 December 2023 at 12 midday.

Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Hesketh Henry, Auckland Advent Ark, Auckland

KIM v MAO [2023] NZHC 3671 [13 December 2023]

Introduction

[1]    Hyun Bin Kim and Duk Young Lee (the creditors) apply for an order adjudicating Jiawen Mao bankrupt. Ms Mao opposes the application.

[2]    The creditors’ application rests on a bankruptcy notice served on Ms Mao on 19 April 2022. Ms Mao unsuccessfully applied to set the bankruptcy notice aside.1 The relevant background to this proceeding is set out in Associate Judge Gardiner’s judgment dated 1 November 2022.2

[3]    The bankruptcy notice is in respect of a judgment debt for an award of indemnity costs of $21,414.20 made in this proceeding, in respect of an earlier bankruptcy notice.

[4]    Ms Mao says that she has claims against the creditors and third parties as a result of their conduct in respect of a mortgagee sale, which is the genesis of this long- running saga. Ms Mao was liable for the shortfall following the mortgagee sale. Ms Mao says that she should not be adjudicated bankrupt so that she can pursue her claims against the creditors and third parties.

[5]    There is no direct challenge to the judgment debt for indemnity costs. There is no evidence that Ms Mao is able to pay the judgment debt. The issue that I need to determine is whether Ms Mao can establish that it is just and equitable that this Court does not make an order adjudicating her bankrupt.

[6]    Alternatively, if I am not persuaded to exercise my discretion in Ms Mao’s favour, she asks for a final opportunity to pay the judgment debt.

Legal principles

[7]Section 36 of the Act provides:

36       Court may adjudicate debtor bankrupt

The court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.

1      Mao v Kim [2022] NZHC 2836.

2      Above at [3] to [19].

[8]    Section 13 requires that the debtor owes the creditor a debt for a certain amount of $1,000 or more, payable immediately or at a date in the future that is certain, and that the debtor has committed an act of bankruptcy within a period of three months before the filing of the application for an order for adjudication.

[9]    The Commissioner has met the jurisdictional requirements of ss 13 and 36 of the Act.

[10]   Section 37 of the Act confers a discretion on the Court to decline to make an order for adjudication:

37       Court may refuse adjudication

The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

(a)the applicant creditor has not established the requirements set out in section 13; or

(b)the debtor is able to pay his or her debts; or

(c)it is just and equitable that the court does not make an order of adjudication; or

(d)for any other reason an order of adjudication should not be made.

[11]   The following general principles, extracted from the caselaw, are relevant to the Court’s discretion to refuse adjudication:

(a)The onus is on the debtor to show why an adjudication order should not be made.3

(b)In exercising its discretion, the Court may consider, inter alia, the following factors:

(i)the views of all affected parties, including the petitioner, other creditors and the debtor;4

3      McHardy v Wilkins & Davies Marinas Ltd (in rec) CA 54/93, 7 April 1993 at 3.

4      Re Sturdee [1985] 2 NZLR 627 (HC) at 635.

(ii)the wider public interest, including whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;5

(iii)the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursing adjudication;6

(iv)whether adjudication would be pointless in the sense that the creditors are unlikely to receive payment;7 and

(v)whether adjudication would render the debtor unable to support him or herself.8

(c)In exercising its discretion, the Court should also remain cognisant of the broader purposes of bankruptcy which include:

(i)allowing for administration of the debtor’s estate in the interests of creditors;

(ii)holding the debtor accountable for his or her debts;

(iii)punishing or stigmatising the debtor for misconduct;

(iv)protecting the community from a debtor who runs up credit without being able to honour it; and

(v)allowing the debtor to eventually take up commercial activity once freed from his or her liabilities after the discharge of their bankruptcy.9

5      Re Nisbett, ex parte Vala [1934] GLR 553 (SC) at 556.

6      Re Epirosa, ex parte Diners Club (NZ) Ltd HC Wellington B498/91, 6 March 1992 at 6.

7      Re Fidow [1989] 2 NZLR 431 (HC) at 444.

8      Re Epirosa, above n 6, at 7.

9      Sheppard v Blanchett [2012] NZHC 789, (2012) 3 NZTR 22-014 at [35]–[43].

(d)Ultimately, the Court must balance the various considerations relevant to an application when concluding whether the debtor has succeeded in showing that the order sought should not be made.10

[12]   Relevantly, s 38 of the Act confers a discretion on the Court to halt an application for adjudication:

38       Court may halt application

(1)The court may at any time halt the creditor’s application for adjudication.

(2)The court may halt the application on the terms and conditions (if any), and for the period, that the court thinks appropriate.

[13]   The discretion in s 38 is intended to be flexible, by its very wording it does not call for the formulation of fixed rules applicable to the exercise of the discretion.11 A condition to a halting order may include payment of outstanding debts not subject to further challenge.12

Analysis

[14]   This is not the first time that Ms Mao has sought to challenge the mortgagee sale process to avoid bankruptcy. These arguments were carefully considered by Associate Judge Gardiner, and rejected, when Ms Mao’s application to set aside the bankruptcy notice was dismissed.13

[15]   Further, the underlying challenges to the mortgagee sale process have been the subject of other litigation in this Court, in CIV-2019-404-2197 and CIV-2021-404-1055. Both of those proceedings were struck out.14

[16]   Ms Mao has filed an application in the Court of Appeal for leave to appeal the High Court’s decision striking out CIV-2021-404-1055. That application is set down for hearing on the papers in the week of 18 March 2024.

10     McHardy v Wilkins & Davies Marinas Ltd (in rec), above n 3, at 4.

11     Bank of New Zealand v Koroniadis [2013] NZHC 2865 at [11].

12     See Body Corporate 68792 v Memelink [2016] NZHC 2658.

13     Above n_.

14     Mao v Best Capital Limited [2021] NZHC 735; Mao v Hesketh Henry [2022] NZHC 2084.

[17]   Ms Mao has also endeavoured to raise the same issues in a third substantive proceeding in this Court, CIV-2023-404-1563. The defendants in that proceeding have applied to strike out the proceeding. That application has not yet been heard.

[18]   Ms Mao sought an adjournment of this proceeding until the Court of Appeal has determined her application for leave to appeal. I decline that application.

[19]   Having reviewed: the judgment of Associate Judge Sussock striking out CIV-2019-4042-2197; the judgment of Davison J striking out CIV-2021-404-1055; the judgment of Associate Judge Gardiner declining to set aside the bankruptcy notice; and Ms Mao’s application to the Court of Appeal, I am satisfied that Ms Mao no longer has any viable basis to bring a claim against the creditors or other third parties arising out of the mortgagee sale and related events.

[20]   Ms Mao is seeking to make collateral attacks on judgments of this Court. The creditors have established the jurisdictional requirements for the Court to make an order for adjudication. The underlying debt is an award of indemnity costs, and as a matter of policy, such orders should be paid.15 Ms Mao has failed to discharge the onus upon her as to why an adjudication order should not be made.

[21]   However, I am prepared to allow Ms Mao a final opportunity to pay her judgment debts owed to the creditors:

(a)The judgment debt that is the basis for the bankruptcy notice, being an award of indemnity costs of $21,414.20 made on 27 October 2020.

(b)An award of costs following the judgment of Associate Judge Gardiner in this proceeding dated 1 November 2022. Costs have not yet been determined. I have reviewed the memorandum of counsel for the creditors, dated 21 November 2022, in support of their application for indemnity costs following that judgment. When this matter was heard in Court on 12 December 2023, I received oral submissions from Mr Zhang on behalf of the judgment debtor. I am satisfied that it is an

15     Copland v Goodwin [2013] NZHC 652 at [58].

appropriate case for an award of indemnity costs to the creditors, in the sum of $13,915.73 as sought by the creditors. I fix costs accordingly.

(c)In CA 682/2020, the costs award from 8 June 2021 of $478.

(d)An award of costs and disbursements in respect of the hearing of this proceeding on 12 December 2023, on a 2B basis, which I fix at $1,934.

(e)In SC 79/2021, the costs award from 21 September 2021 of $2,500.

(f)In CIV-2019-404-2197, the costs award from 7 October 2021 of

$30,333.31.

(g)In CIV-2021-404-1475, the costs award from 18 April 2023 of $19,598.

(h)In CIV-2018-004-381, the costs award from 13 October 2023 of

$4,347.50.

(i)In CIV-2021-404-1881, the costs award from 9 November 2023 of

$1,912.

[22]Therefore, Ms Mao must pay costs orders which total $96,432.74.

Orders

[23]   The creditors’ application for adjudication is halted on the condition that the judgment debtor pay the judgment creditors the sum of $96,432.74 in full by 5 pm on 20 December 2023.

[24]   If the judgment debtor fails to fulfil the above condition, then the halt on this proceeding is lifted, and I will immediately make an order for adjudication.

Associate Judge Brittain