Konishi v Jin

[2013] NZHC 2048

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-2209 [2013] NZHC 2048

IN THE MATTER OF       the Insolvency Act 2006

IN THE MATTER OF       the bankruptcy of RUJING JIN BETWEEN  YASUKI KONISHI and MAKIKO

KONISHI

Judgment Creditors

ANDRUJING JIN Judgment Debtor

Hearing:                   01 August 2013

Appearances:           D Hickson for Judgment Creditors

Y Lee for Judgment Debtor

Judgment:                13 August 2013

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4.30 pm onTuesday 13 August 2013

Solicitors:

D Hickson, Auckland

Yoon Lee, Auckland

Case Manager: [email protected]

KONISHI and KONISHI v JIN [2013] NZHC 2048 [13 August 2013]

[1]      On 1 August 2013 the judgment creditor’s bankruptcy notice was withdrawn and I made an order striking out the judgment debtor’s application to set aside the bankruptcy notice on the basis of advice from counsel from both sides that the only outstanding matter was as to costs. I heard argument on costs and reserved my decision.

[2]      This judgment deals with the remaining dispute as to costs.

[3]      It is not in dispute that on 3 July 2013 the judgment debtor paid in full the amount of the costs judgment on which the bankruptcy notice was based and the sum of $568 that the bankruptcy notice claimed for the cost of filing and serving the notice. Nonetheless the judgment creditors seek by way of additional compensation, full indemnity costs or a partial award of indemnity costs, together with costs on a

2B basis for the balance.  Alternatively, they seek an uplift on 2B scale costs of 20%.

[4]      Mr Hickson, counsel for the judgment creditors, submits that costs should be awarded to the judgment creditors as claimed because:

a)       They  acted  reasonably  in  issuing  the  bankruptcy  notice  and  in opposing  the  application  to  set  aside  the  notice  given  that  the judgment debtor had failed to pay the amount of the judgment debt;

b)The grounds of the judgment debtor’s application to set aside could not succeed.  The reasons are these:

Appeal

i)The foundation judgment, which relates to costs, has not been appealed.    Though  the  judgment  debtor  has  appealed,  the appeal relates to the substantive judgment that gave rise to an award of costs, and not to the costs award which is contained in the separate costs judgment.

Stay

ii)The judgment debtor’s  application to stay execution of the foundation judgment has failed.  Her argument that the costs judgment of the High Court is void is untenable, as is her argument that the costs award is unreasonable.

A cross demand

iii)The judgment debtor has never had an arguable cross demand and in any event no evidence of a cross demand is referred to in the affidavit in support of the application to set aside.

Inherent jurisdiction

iv)There is no basis for invoking the court’s inherent jurisdiction to set aside the bankruptcy notice as there has been no abuse of process.

[5]      In  support  of  indemnity  costs,  Mr  Hickson  argues  that  counsel  for  the judgment debtor has prolonged this proceeding with arguments that lack merit.  He also complains that Mr Lee misconstrued the minute I issued on 06 June 2013 as a direction to settle, and put him to the trouble of having to file a memorandum correcting the position. This resulted in needless expense.   Additionally, though eventually agreeing to pay the judgment debt, the judgment debtor tendered her cheque on the basis that costs be compromised.   That was unacceptable and unreasonable. It was only when the judgment debtor ultimately paid the amount of the judgment debt into his trust account without conditions that the bankruptcy notice was satisfied and this proceeding was effectively brought to an end.  By then significant costs had been incurred.

[6]      Mr Lee, counsel for the judgment debtor, submits that there should be no order for further costs in favour of the judgment creditors.  He relies principally on an abuse of process argument.  He submits that counsel for the judgment creditors

acted precipitously and unreasonably in issuing a bankruptcy notice because they were aware not only that the judgment debtor had made an interim application for a stay and had lodged an appeal but that she was solvent.  Counsel submits that the fact that the stay application has failed and the appeal is against the substantive judgment does not mean the separate costs award will necessarily stand when the appeal is determined.

[7]      Additionally, counsel for the judgment debtor submits with respect to her insolvency that the judgment debtor was always in a position to pay the judgment debt and that the judgment creditors have been aware for some time that she has a valuable property worth over $800,000 in which she has equity of $400,000 as this was put before the Court in the course of the stay application. In these circumstances there was no justification to test her solvency by serving her with a bankruptcy notice and nor was there ever any realistic prospect that she would be bankrupted if she refused to comply with the demand for payment. Unwillingness to pay is not a ground for adjudication, inability to pay is. Therefore the judgment creditors could not have held a realistic expectation that the bankruptcy notice was appropriate.

[8]      Counsel also submits that the judgment creditors acted oppressively in other ways. They registered a charging order against the property and thereby obtained security for the debt.1 When he offered payment and tendered a cheque the response of counsel for the judgment creditors was that unless the judgment debtor paid

$30,000 into his trust account, the cheque would be returned and the application would  have  to  proceed  on  an  opposed  basis.  The  cheque  was  returned.  The unfairness of this response was compounded when payment of the amount demanded in the bankruptcy notice was tendered to the Registrar who erred in not accepting payment.

[9]      In a further challenge to the application for costs counsel for the judgment debtor submitted that the bankruptcy notice was deficient as it did not inform the

judgment debtor of some the matters set out in s 29(1) (b)(ii).  He did not press the

1 Re Gate (1996) 9 PRNZ 568; Re Lynch ex parte Main HC Palmerston North CIV-2008-454-285, 8

May 2009, per Gendall AJ.

argument however and was right not to do so.  The bankruptcy notice accords with the prescribed form.

Decision

[10]     Under the statutory costs regime, the presumption is that the successful party is entitled to costs.  Where there is no successful party and a matter is settled, the Court looks at whether steps taken by a party were reasonable.

[11]     I am satisfied on the evidence that the judgment creditors acted reasonably in issuing the bankruptcy notice and I am not persuaded to the contrary by the various arguments Mr Lee relies upon:

a)       Execution of the costs judgment had not been halted and Wylie J has found there to be no basis for a stay of the substantive judgment.

b)There is nothing in the evidence before me to warrant my treating the issuing of the bankruptcy notice as an abuse of process. There is for instance nothing to show that the judgment creditors learned in the course of the stay application that the judgment debtor was solvent and so had knowledge that might led the court, in its inherent jurisdiction, to conclude that the subsequent issuing of the notice was an abuse of process. Additionally as Mr Hickson points out, the judgment debtor has not filed a statement of assets and liabilities to positively support her claim for solvency.

c)       Though a charging order may act as a security, the existence of an order does not prevent an application for bankruptcy.2     It does not therefore  make  it  improper  for  a  judgment  creditor  to  test  the

judgment debtor’s solvency by way of a bankruptcy notice.

2 Re Gate, above n 1.

d)Materially  and  crucially,  as  Mr  Lee  acknowledges,  the  judgment creditors were entitled to issue the notice test the judgment debtor’s solvency because the judgment debt was not paid.

[12]     I  am  however  not  satisfied  that  the  judgment  creditors  acted  wholly reasonably thereafter though I pause to note that the same criticism can be levelled at the judgment debtor.   Ms Jin’s offer of payment was dilatory.   Counsel for the judgment creditors submits that she made the offer two months after the bankruptcy notice  was  served  on  her  and  a  month  after  the  judgment  creditor  filed  its application.  He says that by then, the judgment creditor had incurred costs.  Counsel for Ms Jin says that submission overlooks entirely the fact that their own stance was that they would not accept her payment and indeed returned her cheque on the basis that their intention was to proceed with their opposition to her application unless she increased her payment to $30,000. Counsel for the judgment creditors counters with the submission that though the judgment debtor had her counsel advise that she would pay the amount of the costs judgment plus a sum for costs to cover those claimed in the bankruptcy notice, her terms were that all other costs were to lie where they fell. That was unacceptable to the judgment creditors.

[13]   The strong impression I have is that had both sides adopted a less confrontational stance in their dealings over payment of costs the debt would have been paid sooner and the costs of this litigation curtailed for both sides. The proper course, given that the judgment debtor indicated she was able and willing to pay the judgment debt and the costs claimed in the bankruptcy notice, was for the parties to reserve their respective positions as to further costs. Instead she sought to impose a limit on costs and they refused payment unless she paid the amount they demanded.

[14]     In these circumstances I am satisfied that the $548 claimed in the bankruptcy notice is reasonably claimed but that there should be no order for further costs. The order accordingly.

Associate Judge Sargisson