Lepionka & Co Investments Ltd v Paterson
[2020] NZHC 3332
•16 December 2020
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2020-441-32 CIV-2020-441-45 CIV-2020-441-67
CIV-2020-441-68 [2020] NZHC 3332
BETWEEN LEPIONKA & CO INVESTMENTS LIMITED
Judgment CreditorAND
GARTH BOWKETT PATERSON
Judgment Debtor
Hearing: 2 December 2020 Appearances:
S Leslie for judgment creditor Judgment debtor in person
Judgment:
16 December 2020
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
This judgment was delivered by me on 16 December 2020 at 4.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:16 December 2020
Introduction
[1] This is an application by the judgment creditor, Lepionka & Co Investments Ltd, for an order pursuant to s 36 of the Insolvency Act 2006 adjudicating the judgment
LEPIONKA & CO INVESTMENTS LIMITED v PATERSON [2020] NZHC 3332
debtor, Mr Garth Paterson, bankrupt. It has an unusual feature. Prior to Lepionka & Co commencing this proceeding, and arising out of earlier litigation between the parties, on 26 August 2020, Doogue J made an order pursuant to s 166 of the Senior Courts Act 2016 in the following terms:1
[170] An order under s 166 is made on the following terms:
Garth Bowkett Paterson, in any capacity, including but not limited to as a trustee of any trust, is restrained from commencing or continuing any civil proceeding (or matter arising out of a civil proceeding) that relates in any way to the matters listed below, for a period of three years:
(a)Any interest in any of, or part of, land at 354 Kahuranaki Road, Hawke’s Bay, including the parcels of land having the following unique identifiers:
(i) 716653;
(ii) 716652;
(iii) 716651; (iv) 822870; (v) 822871; (vi) 868572;
(vii) 868573;
(viii) 868574; (ix) 868575; (x) 868576; (xi) 868577.
(b)Any caveat lodged on any of the parcels of land identified at
(a) or their predecessors or successors in title.
(c)Any sale or proposed sale of any of the parcels of land identified at (a).
(d)The development by GLW Limited (in liquidation), and/or Lepionka and Company Investments Limited as mortgagee, at 354 Kahuranaki Road, Hawkes Bay and which resulted in the parcels of land identified at (a).
1 Paterson v Lepionka & Co Investments Ltd [2020] NZHC 2184.
(e)The borrowing or lending arrangements involving two or more of: GLW Limited (in liquidation), Lepionka and Company Investments Limited, AFI Management Pty Limited, K R Mortgage Company Limited, and Garth Bowkett Paterson (in any capacity whatsoever).
(f)Any actions of any of the defendants in this proceeding, or any of their family members, or K R Mortgage Company Limited, which in any way relates to any of the above matters.
[2] Accordingly, it is necessary to address the impact of that order on Mr Paterson’s entitlement to defend the application now before the Court.
Background
[3]First, though, a sketch of the background.
[4] The dispute between the parties has a long history. It is described in several judgments of this Court, most recently and comprehensively by Doogue J in her Honour’s judgment of 26 August 2020 already referred to.2 It is unnecessary to repeat the history in any detail here, though, for contextual purposes, a summary may be helpful.
[5] In 2009 a company by the name of GLW Group Ltd, the shares in which were owned or controlled by Mr Paterson or persons or entities with whom or which he was connected, and of which Mr Paterson was the director, purchased a property in Hawke’s Bay with the intention of developing the same.
[6] The project appears to have proceeded uneventfully until 2014. Early that year, GLW entered into sale and purchase arrangements for lots in the development with persons or entities associated with Mr Stefan Lepionka.
[7] During the balance of 2014 and into 2015, the project was beset by one problem after another. Eventually, in early 2015, GLW’s principal financier, Westpac, moved to foreclose on its first mortgage security. Mr Lepionka obviously became concerned that his interests were at risk. Lepionka & Co was incorporated and negotiated an assignment from Westpac of GLW’s debt and security. Lepionka & Co then adopted
2 Paterson v Lepionka & Co Investments Ltd, above n 1.
the contracts for the acquisition of properties within the development pursuant to s 179 of the Property Law Act 2007 and became a mortgagee in possession. Lepionka & Co then proceeded with the development.
[8]Since that point, the parties have been in dispute.
[9] Minor skirmishes aside, the substantive issues between the parties were dealt with by Fitzgerald J in AFI Management Pty v Lepionka & Co Investments Ltd.3
[10] In her Honour’s 26 August 2020 judgment, Doogue J summarised the issues dealt with in Fitzgerald J’s earlier judgment as involving allegations by Mr Paterson and GLW that Lepionka & Co as mortgagee in possession had:4
(a)wrongfully refused to allow GLW to redeem the mortgage;
(b)breached its statutory and equitable duties to act in good faith and for a proper purpose; and
(c)by adopting the Lepionka purchase contracts, breached its statutory and equitable duties to obtain the best price reasonably obtainable at the time of sale, as those sales were under value.
[11] Doogue J also summarised Fitzgerald J’s findings and I adopt her Honour’s summary of these:5
(a)LCIL had exercised its power of sale as mortgagee by adopting the Lepionka purchase contracts under s 179 of the Property Law Act, effective from 7 April 2015.
(b)LCIL did not lawfully refuse to allow GLW to redeem the mortgage in April 2015.
(c)LCIL breached its equitable duties as mortgagee, in that it exercised its powers of sale for an improper purpose.
(d)LCIL may have breached its statutory and equitable duties under s 176 under the PLA to take all reasonable precautions to obtain the best
3 AFI Management Pty Ltd v Lepionka & Co Investments Ltd [2017] NZHC 3116.
4 Paterson v Lepionka & Co Investments Ltd, above n 1, at [14].
5 At [15].
price reasonably obtainable for the property. This could not be determined until the sales had settled.
(e)It would be inequitable to set aside the Lepionka purchase contracts, and GLW’s remedies would be confined to damages. A final assessment of damages would occur after the subdivision and all sales had been completed.
[12] Initially, GLW appealed from Fitzgerald J’s judgment, but liquidators were subsequently appointed over the company, and a settlement followed in which GLW resolved any claim it might have and abandoned its appeal.
[13] Mr Paterson in his personal capacity has however commenced and prosecuted further proceedings, and it is this that ultimately led to Doogue J making the order pursuant to s 166 of the Senior Courts Act.
[14] This bankruptcy proceeding is founded on four costs orders all made by this Court in the context of earlier litigation. The details are unimportant. The judgments total over $61,000.
The s 166 order
[15] Pursuant to s 166 of the Senior Courts Act, the Court may make an order restricting an individual or entity from commencing or continuing proceedings. Such an order may be of “limited effect”, “extended effect”, or “general effect” to meet the particular circumstances of the case.
[16] The grounds for the making of an order are set out in s 167 of the Senior Courts Act. This is a relatively detailed provision. For present purposes, it is sufficient to say that before making such an order the Court will need to be satisfied that the person or other entity concerned has pursued meritless litigation.
[17]Doogue J reached such a conclusion in the case of Mr Paterson.
[18] Around the same time as Doogue J released the 26 August 2020 judgment, Lepionka & Co served on Mr Paterson four bankruptcy notices in respect of the four costs orders made in the various proceeding already discussed. The first bankruptcy notice was for an amount of $9,476, and the second bankruptcy notice was for an
amount of $29,619.13. These two notices were served on 17 July 2020. The third bankruptcy notice was for an amount of $9,679.50, and the fourth bankruptcy notice was for an amount of $12,978.60. These two notices were served on 15 September 2020.
[19] On 31 July 2020 Mr Paterson filed an application for orders setting aside the first and second bankruptcy notices, and on 23 September 2020 he filed an application for orders setting aside the third and fourth bankruptcy notices. Given the existence of the s 166 order, when, on 29 September 2020, Mr Paterson filed a memorandum seeking leave to file these applications this was referred to Doogue J.
[20] In a minute dated 9 October 2020 Doogue J referred to her earlier order, the service by Lepionka & Co of the four bankruptcy notices on Mr Paterson, Mr Paterson’s two interlocutory applications for orders setting those bankruptcy notices aside, and his subsequent 29 September 2020 memorandum seeking leave. Doogue J treated Mr Paterson’s applications for orders setting aside the bankruptcy notices as the commencement of proceedings – which they clearly were. Her Honour did not dismiss the applications summarily. Rather, she examined the grounds in the applications and the supporting affidavits, and concluded that the grounds relied on by Mr Paterson constituted grounds which had already been the subject of litigation between the parties. On that basis, her Honour concluding that the applications were the commencement or continuation of proceedings caught by the s 166 order and refused Mr Paterson leave.
[21] Mr Paterson objected to this. However, I can see no basis for his objection. There is no doubt that the matters raised by him in his applications fall within the earlier s 166 orders. He needed leave. Although he made no formal application for leave, Doogue J treated his memorandum of 29 September 2020 as if it were such an application. Doogue J considered the merits of that application, concluding, rightly, it appears to me, that the issues raised were simply a re-treaded version of matters already litigated between the parties. In those circumstances, her Honour refused leave.
[22] Lepionka & Co commenced this proceeding on 19 October 2020. Mr Paterson filed a notice of opposition to Lepionka & Co’s application for an order adjudicating him bankrupt on 1 December 2020, together with detailed affidavit evidence in support.
[23] Against the background of Doogue J’s minute of 9 October 2020, an issue then arose as to whether that material should be accepted for filing. The Registry referred the matter to Cooke J as duty judge. By minute dated 12 October 2020 his Honour declined Mr Paterson leave to file this material, again after concluding that it raised issues already determined by the Court.
[24] It appears to me that there is a distinction between a party on whom a bankruptcy notice is served commencing proceedings by filing and serving an originating application for an order setting aside the bankruptcy notice (which clearly involves the commencement of a proceeding), and that party filing a notice of opposition opposing the making of an order adjudicating him bankrupt and affidavit evidence in support of the same.
[25] The view I take is that the filing of a notice of opposition and affidavit evidence in support cannot on any view be treated as the commencement, or even the continuation, of proceedings. Furthermore, it seems to me to be inconsistent with general principles to deny a defendant the right to defend a claim. Somewhat surprisingly counsel for Lepionka was unable to refer me to any authority on the point, and nor has my own research uncovered any.
[26] Accordingly, whilst I agree with the approach adopted by Doogue J to the commencement of the application to set aside the bankruptcy notices, the view I take is that that did not also preclude Mr Paterson from filing a notice of opposition and affidavit evidence in support in attempting to defend the application.
[27] Those things said, it also follows, as Cook J obviously concluded, that it would be an abuse of process for a respondent in such circumstances to advance arguments which are caught by the earlier s 166 notice. And, as will become clear, that, in my view, that is precisely what Mr Paterson has attempted to do.
[28] In any event, when the matter was called on 2 December 2020, I permitted Mr Paterson to speak to the notice of opposition and affidavit evidence he had attempted to file and serve.
Mr Paterson’s submissions
[29] The first submission made by Mr Paterson is that he has not committed an act of bankruptcy. He makes the submission on the basis that he filed and served applications to set aside the bankruptcy notices within the 10 working day time frame provided for in the bankruptcy notice, in accordance with r 24.10 of the High Court Rules 2016.
[30] It is true that in relation to the two bankruptcy notices served on 17 July 2020, Mr Paterson did file applications to set these aside in a timely way. He did so on 31 July 2020.
[31] However, insofar as the two bankruptcy notices served on 15 September 2020 are concerned, although Mr Paterson did attempt to file his applications to set these aside within 10 days, he did so at a time when the s 166 order was in force and he required leave to do so. Such leave was refused by Doogue J in her minute dated 9 October 2020. Accordingly, technically, those applications were never filed. As Ms Leslie submits on behalf of Lepionka & Co, Mr Paterson has therefore committed an act of bankruptcy.
[32] It is not hard to understand that Mr Paterson may feel somewhat aggrieved by the technical nature of that conclusion. It is a point that would trouble me, were it not for the fact that Mr Paterson faces more substantive difficulties to which I will come.
[33] Mr Paterson’s second submission is that he has a cross claim against Lepionka & Co which is larger than that company’s claims against him. It is of course elementary that if a person on whom a bankruptcy notice is served can establish an arguable cross claim equal to or greater than the amount of the claim on which the bankruptcy notice is based, that is a proper basis for a submission that no order bankrupting the party concerned should be made.
[34] The difficulty that Mr Paterson faces in this case is that the arguments he advances in support of his cross claim are in the end nothing more than a repetition of aspects of the arguments that he has made in a number of previous cases which were dealt with by Fitzgerald J in her judgment of 14 December 2017.6 It was to avoid Mr Paterson advancing such arguments again in further proceedings that Doogue J made the order pursuant to s 166 of the Senior Courts Act that she did in her judgment of 26 August 2020.
[35] When I put this to Mr Paterson during the course of the hearing he responded by saying that the argument available to him was now an entirely new one because the development had come to an end, Lepionka & Co as the mortgagee in possession was obliged to account to the mortgagor, that he had requested a breakdown of this and been ignored, and that there was prima facie evidence that there was a substituted surplus for distribution.
[36] To the extent that this may represent a new twist on some of the arguments Mr Paterson has run in the past, it is fundamentally misconceived. The mortgagor of this property was and is GLW. That company having been put into liquidation it is the liquidators to whom Lepionka & Co must account. Mr Paterson has no entitlement to demand information. In any event, there is no evidence before the Court demonstrating that there will be any surplus. All there is is Mr Paterson’s speculation about this.
[37] The only other point Mr Paterson makes that is new is a contention that he is not insolvent. On this basis, he invited the Court to exercise its discretion to refrain from making an order bankrupting him.
[38] However, Mr Paterson has put no evidence before the Court as to his financial position, and the Court is in no position to make an assessment as to this. Thus he has not rebutted the presumption of insolvency raised by him.
6 AFI Management Pty Ltd v Lepionka & Co Investments Ltd, above n 3.
Material filed and served following the 2 December 2020 hearing
[39] At the conclusion of the hearing of this matter Mr Paterson sought leave to arrange the swearing and filing and service of certain affidavits (copies of which were already before the Court in an unsworn form), and I gave him such leave, provided that any such affidavit evidence was before the Court in final form by 10 December 2020.
[40] The affidavits in question were sworn by Mr Richard Avis, Mr Michael Stanton, Mr Chris Kokkinis, Mr Warren Ladbrook and Mr Allan Johnson.
[41] At the same time Mr Paterson also filed and served a further affidavit sworn by himself dated 10 December 2020. This is a curious combination of an attempt to introduce additional evidence together with submission. It is filed and served out of time without leave.
[42] But for the fact that Ms Leslie has responded substantively to all this material by memorandum dated 11 December 2020, I would have declined Mr Paterson leave to do anything more than file sworn copies of the affidavits that were already before the Court in unsworn form.
[43] As Ms Leslie submits the purpose of the Avis, Stanton and Kokkinis affidavits would appear to be to support Mr Paterson’s contention that the development property was originally acquired in GLW’s name was beneficially owned by Mr Paterson’s sons by reason of a trust settled by him. This assertion of the existence of a trust appears to be intended to support an argument that Lepionka & Co is obliged to account to him. It does nothing of the sort. In any event, this argument is a relatively recent one. Certainly none of the documents produced through these deponents has been before the Court in the past. As Ms Leslie submits, in her 26 August 2020 judgment, Doogue J accepted the existence of this trust and dealt with the case on that footing. Accordingly, this evidence cannot assist Mr Paterson.
[44] The Ladbrook and Johnson affidavits, and Mr Paterson’s own affidavit, consist largely of inadmissible material, as Ms Leslie submits.
[45] I accept Ms Leslie’s submission that there is nothing in this material, even if it were admissible, that has not already been considered and dealt with by the Court, or that supports Mr Paterson’s defence of the application before the Court.
[46] Since Ms Leslie responded to Mr Paterson’s additional material, Mr Paterson has seen fit to file and serve a further submission – a reply to the reply as it were – supported by yet another affidavit sworn by him. There is a point at which the Court must rule a line. Mr Paterson has crossed that line. I decline to accept this further material, and have not considered it.
Conclusion
[47] For those reasons, I am left with no doubt that Lepionka & Co is entitled to the order it seeks and I make an order adjudicating Mr Paterson bankrupt. Lepionka & Co will have its costs on a 2B basis in the sum of $6,692 together with disbursements of $1,337.37.
[48] That order will come into force at the time and on the date entered on the cover sheet of this judgment by the Registrar.
Associate Judge Johnston
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