Malley & Co v Burgess
[2017] NZHC 950
•12 May 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000439 [2017] NZHC 950
IN THE MATTER of the Insolvency Act 2006 AND
IN THE MATTER
the bankruptcy of GARY OWEN BURGESS
BETWEEN
MALLEY & CO Judgment Creditor
AND
GARY OWEN BURGESS Judgment Debtor
Hearing: 2 May 2017
Additional submissions (in writing) 11 May 2017
Appearances:
A J Gaborieau for Judgment Creditor
G O Burgess (Judgment Debtor) in personJudgment:
12 May 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on adjudication application]
[1] Malley & Co apply for Mr Burgess’s adjudication in bankruptcy stemming from Mr Burgess’s failure to comply with a bankruptcy notice for payment of a judgment debt.
[2] Mr Burgess’s opposition to the application raises issues as to whether –
(a) the application was filed before an act of bankruptcy occurred and is therefore a nullity;
(b)Mr Burgess has a triable counterclaim which equals or exceeds the judgment debt;
MALLEY & CO v BURGESS [2017] NZHC 950 [12 May 2017]
(c) Malley & Co’s use of the application is vexatious, an abuse of process
or oppressive;
(d) The Court ought, in its discretion, to refuse adjudication having regard
to Mr Burgess’s pending appeal concerning his counterclaim.
Factual background
[3] Relevant to the application is the following chronology:
2 October 2014 High Court dismisses Mr Burgess’s judicial review
application1
27 November 2014 Judicial review costs judgment – High Court orders Mr Burgess to pay Malley & Co costs and disbursements of $43,844.292
5 May 2016 Legal costs/counterclaim judgment – High Court enters judgment for Malley & Co on its legal costs claim and on Mr Burgess’s counterclaim3
30 May 2016 Mr Burgess’s notice of appeal from legal
costs/counterclaim judgment
20 June 2016 Effective date of service of Malley & Co’s bankruptcy
notice upon Mr Burgess
30 June 2016 Mr Burgess files application to set aside bankruptcy notice
5 December 2016 High Court dismisses Mr Burgess’s setting aside application4
1 Burgess v Tait [2014] NZHC 2408.
2 Malley & Co v Burgess [2014] NZHC 2981.
3 Malley & Co v Burgess [2016] NZHC 907.
4 Malley & Co v Burgess [2016] NZHC 2920.
16 December 2016 Malley & Co files application for adjudication order
25 July 2017 Scheduled Court of Appeal hearing of Mr Burgess’s
appeal from legal costs/counterclaim judgment.
The pleaded date of the act of bankruptcy
[4] Malley & Co, in its application, asserted that Mr Burgess committed an available act of bankruptcy on 4 July 2016, being 10 working days from 20 June
2016 (the agreed effective date of service of the bankruptcy notice).
[5] Mr Burgess’s note of opposition identified the fact that 4 July 2016 was more than three months before the date of the filing of the adjudication application, a circumstance which would under s 13(b) Insolvency Act 2006 invalidate the application.
[6] The date identified by Malley & Co was clearly incorrect. In her synopsis, Ms Gaborieau invoked the provisions of s 418 Insolvency Act to have the Court correct the error as to the date.
[7] At the hearing, Ms Gaborieau submitted that the application ought to have identified 7 December 2016 as the date on which Mr Burgess committed an available act of bankruptcy. Ms Gaborieau submitted that, in terms of s 418(1) of the Act, Mr Burgess had not been prejudiced by the defect (as to the identification of date) and that this was a proper case in which to correct the defect.
[8] Ms Gaborieau responsibly accepted that, were the Court to find that the act of bankruptcy post-dated the finding of the application for adjudication, such a situation rendered the proceeding a nullity and could not be categorised as a “defect” which
(under s 418) would not invalidate an insolvency proceeding.5
5 The authorities which support Ms Gaborieau’s concession include Re Tomkies, ex parte Te Puni-
2000 Ltd HC Wellington CIV-2010-485-1076, 30 September 2010 at [20]; Hawkins v Young
Hunter (1997) 10 PRNZ 453 (HC) at 457; Re Sharma, ex parte Wati HC Auckland CIV-2008-
404-6367, 29 January 2009 at [32]; Re Stirling, ex p Webb Ross & Co [1990] 1 NZLR 569 (HC)
at 572.
Issue 1: the date of the act of bankruptcy
The competing arguments summarised
[9] The prescribed form of bankruptcy notice requires a debtor (served within New Zealand) to take one of the identified steps within 10 working days after service of the notice (excluding the day of service).6
[10] The debtor may, as an alternative to payment of the judgment debt, apply to this Court for the setting aside of the bankruptcy notice on the basis that the Court is satisfied the debtor has a cross-claim which equals or exceeds the amount claimed by the judgment debtor.7
[11] Rule 24.10 High Court Rules provides for the (common) situation in which a setting aside application cannot be heard within the 10 working days after service of the bankruptcy notice.
[12] The Rule provides:
24.10 Setting aside bankruptcy notice
(1) If an application to set aside a bankruptcy notice cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the time is treated as extended until the application has been determined.
(2) An act of bankruptcy is not committed by reason only of non- compliance with the notice until the application has been determined.
[13] An issue arises as to the construction of the extension provision under r
24.10(1). Mr Burgess submits that a debtor has 10 working days from the date of the judgment determining the setting aside application in which to comply with the bankruptcy notice. Ms Gaborieau submits that further time to meet the bankruptcy notice is such time as had not expired at the time the setting aside application was filed. On Mr Burgess’s approach, the act of bankruptcy would have occurred on 19
December 2016 (10 working days after the delivery of Associate Judge Matthews’s
judgment, excluding the date of delivery); on Ms Gaborieau’s approach, the act of
6 High Court Rules, r 24.8(3) and Schedule 1, Form B2.
7 Insolvency Act 2006, s 17(1)(d)(ii).
bankruptcy occurred on 7 December 2017. (Mr Burgess had filed his setting aside application eight days after the service of the bankruptcy notice and therefore, on Ms Gaborieau’s approach, had two working days remaining in which to meet the notice requirements).
[14] The correct construction of r 24.10(1) is of fundamental importance. If Ms Gaborieau’s approach is correct, the application for an adjudication order was filed after the act of bankruptcy occurred. On the other hand, if Mr Burgess’s approach is correct, Malley & Co filed its application for an adjudication order (on 16 December
2016) before the act of bankruptcy occurred (on 19 December 2016).
[15] There is a third possibility which neither party addressed in submissions at the hearing. Another interpretation of r 24.10(1) High Court Rules is that an act of bankruptcy (if the debtor has not made payment in the meantime) occurs at the point the application is determined, by the giving of an oral judgment or the delivery of a
written judgment.8 As this interpretation became evident to me after I had reserved
this judgment, I then extended to both parties the opportunity to file any additional written submissions setting out any submissions as to this additional interpretation. Both Ms Gaborieau and Mr Burgess did so.
Creditor’s submission
[16] For the hearing Ms Gaborieau had not identified any authority on the correct construction of the extension of time under r 24.10. She submitted that on the wording of the rule, the time for compliance with the bankruptcy notice is to be treated as suspended while the setting aside application remains on foot and that the balance of time which remained when the setting aside application was filed becomes available to the debtor if the Court does not set aside the bankruptcy notice. So, as in the present case, where a setting aside application is filed on the eighth working day after service of the bankruptcy notice, the debtor would have a further two days after the dismissal of the setting aside application to satisfy the bankruptcy
notice.
8 High Court Rules, rr 11.4 – 11.5 applying.
[17] Some support for Ms Gaborieau’s submission may be taken from the commentary on r 24.10 in McGechan on Procedure where the authors observe:9
HR24.10.02 Application to set aside stops time running
An application to set aside a bankruptcy notice stops time running for compliance with the notice. It follows that an application for adjudication will be dismissed if there is a valid application to set aside before the court, as no act of bankruptcy will have occurred: Re Stirling; Hawkins v Young Hunter. If the application to set aside is itself dismissed, then the court is likely to offer further time for compliance with the bankruptcy notice: see for example Re Tomkies, ex parte Te Puni-2000 Ltd. (footnotes omitted).
[18] The concept that “time stops running” is consistent with Ms Gaborieau’s initial submission although the commentary is silent as to the point at which the time will then expire.
Mr Burgess’s submission
[19] Mr Burgess at the hearing was similarly unable to identify any authority directly on point.
[20] Mr Burgess identified two decisions of this Court which he submitted deal with an analogous situation and should be applied so as to treat the ten day period under the bankruptcy notice as starting afresh once the setting aside application is determined. The decisions are Liu v Cutting10 and Wilkinson Adams v Bethune.11 In each case, the Court had to consider the impact of complaint proceedings before a Standards Committee of the New Zealand Law Society upon the time limits (for
defence) which would otherwise run under the (then) District Court Rules. Following service of a notice of claim in the District Court, a defendant had 30 days to respond.12 Where the defendant complains to the Law Society about the amount of a lawyer’s fee, the provisions of s 161(1) Lawyers and Conveyancers Act 2006
operate:
9 A C Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters).
10 Liu v Cutting (2011) 20 PRNZ 806.
11 Wilkinson Adams v Bethune [2012] NZHC 781, [2012] NZAR 640.
12 See District Courts Rules 1992, r 128.
161 Stay of proceedings for recovery of costs
(1) If, under section 141, a Standards Committee gives notice to a practitioner … that it has received a complaint under section 132(2) about the amount of a bill of costs rendered by that practitioner … no proceedings for the recovery of the amount of the bill may be commenced or proceeded with until after the complaint has been finally disposed of.
[21] In Liu v Cutting, Joseph Williams J would have found, if necessary, that Mr Liu’s 30-day period for defence had started afresh once the complaint (to the Law Society) had been finally disposed of. His Honour explained the issue thus (obiter):
Could the 30-day period stop and restart?
[33] There is a second question about when the stay period is to commence in accordance with the wording of s 161(1). The relevant part of the subsection provides:
If, under section 141, a Standards Committee gives notice to a practitioner … that it has received a complaint under section 132(2) about the amount of a bill of costs rendered by that practitioner … no proceedings for the recovery of the amount of the bill may be commenced or proceeded with until after the complaint has been finally disposed of.
[34] Is the stay to commence at the date upon which the Standards Committee receives the complaint, or the date of notice to the practitioner? I presume that it must be the date of notice to the practitioner since its purpose is to stay the hand of that practitioner. After all, the practitioner will at least need to know he or she should take no further steps.
[35] … is it contemplated that the 30-day clock can be stopped and then restarted after completion of the review? I do not think so. The subsection says proceedings cannot be commenced or proceeded with during a review. It does not say “commenced or continued” a phrase, in my view, more apt to allow the clock to stop and start. Although, it is strictly speaking unnecessary for me to reach a view on this, I tend to think that the 30-day period should start afresh once the review is completed. That is, the claim cannot proceed at all until after the review. Apart from being consistent with the phrase “proceeded with”, that interpretation seems to me a fairer one. For example, the time between making the complaint to NZLS, and NZLS notifying the practitioner, triggering the stay, is outside the appellants’ control. On different facts, complainants may be left with only a day or no time at all to file a defence following the NZLS decision.
[36] In the end, this is simply a default judgment procedure and the Act and rules ought to be interpreted in a way that allows the appellants proper time after the LCRO has completed his or her work to take steps if they wish to.
[22] In Wilkinson Adams v Bethune, Clifford J also had to consider the inter- relationship between the District Court Rules and s 161 Lawyers and Conveyancers Act. In finding that the District Court Judge had incorrectly found that the lawyer’s proceeding (for unpaid legal fees) had come to an end, his Honour adopted the conclusion in Liu v Cutting. Referring to that decision, Clifford J stated:13
… although not necessary for his decision, Joseph Williams J expressed the view that the 30 day period would start afresh once the stay had expired, rather than only running for the balance of the number of days for which it was unexpired when the stay had come into effect. That is, the 30 day period did not stop and then restart, but rather started again once the period of the stay had expired. I discuss later the reliance placed on this decision by Wilkinson Adams. I simply note at this point that Liu v Cutting also supports my conclusion that the Judge erred in reaching his view that, notwithstanding s 161, Wilkinson Adams’ proceedings had come to an end.
[23] In applying the fresh 30 working day period later in his judgment, Clifford J
observed:14
… [Mr Bethune’s] complaint was finally disposed of, and the s 161(1) stay came to an end, when the time allowed for him to apply for such a review had expired. That time is (see s 198(b)) within 30 working days after the Standards Committee makes its determination. That determination was made on 2 December. Therefore that period of 30 working days expired, applying the Interpretation Act’s definition of working day, on 24 January 2011.
[24] His Honour, notwithstanding the finding that the District Court Judge had incorrectly concluded that Wilkinson Adams’ proceeding had come to an end, dismissed the appeal. He held that a number of other irregularities invalidated the default judgment.
Discussion
[25] The meaning of r 24.10(1) is to be ascertained from its text and in the light of its purpose.15 The rule itself deals with the situation where an application to set aside a bankruptcy notice is filed. It states that the time (specified in the notice for compliance) is “treated as extended until the application has been determined”.
(emphasis added)
13 Above n 11, at [32].
14 At [38].
15 Interpretation Act 1999, s 5(1).
[26] On the plain wording of the rule, the extension of time comes to an end when the setting aside application is determined.
[27] This accords with decisions of Associate Judge Bell in Body Corporate
34188 v Kelly16 and in Dench v Gates,17 which Ms Gaborieau identified and referred to in her supplementary submissions following the hearing.
[28] In the Kelly case, Associate Judge Bell upon dismissing a setting aside application, observed:18
The result of this decision is that time for complying with the bankruptcy notice has now expired and time has started to run under s 13 of the Insolvency Act.
Similarly, in Dench v Gates, his Honour having dismissed the application observed:19
The dismissal of Mrs Gates’ application to set aside the bankruptcy notice means that under r 24.10 the setting-aside application has been determined and that the time for compliance has now expired.
[29] As Associate Judge Bell did not in either judgment identify on what working day after service of the bankruptcy notice the setting aside application was filed, it is conceivable that in each case it was filed on the last working day. If that had been so, the approach applied by Associate Judge Bell would have been consistent with the interpretation which Ms Gaborieau initially submitted to be correct – there would simply have remained no working days by which to extend the notice. On the other hand, the lack of reference in either judgment to the time of filing the setting aside application strongly suggests that his Honour was applying the interpretation of r 24.10(1) whereby time for compliance never extends beyond the determination of the setting aside application.
[30] That interpretation accords with my above conclusion as to the plain meaning of r 24.10(1).
16 Body Corporate 34188 v Kelly [2016] NZHC 2230.
17 Dench v Gates, [2013] NZHC 1133.
18 Body Corporate 34188 v Kelly, above n 16, at [54].
19 Dench v Gates, above n 17, at [37].
[31] The statutory regime relating to the stay of proceedings under s 161 Lawyers and Conveyancers Act is distinguishable. What is involved in the bankruptcy notice situation (under r 24.10 High Court Rules) is simply the time for payment, the only required step being payment. With stayed proceedings for recovery of costs, what is involved (if the review of the bill of costs is unsuccessful) is the preparation of a defence and its filing (in the relevant court or tribunal). As recognised by Joseph Williams J in Liu v Cutting, the statutory regime under the Lawyers and Conveyancers Act must have contemplated a fresh period which reasonably permitted the complainant to prepare a defence in the light of the NZLS decision.
[32] A further statutory regime to which the bankruptcy notice regime might be compared is that under s 290 Companies Act 1993, which relates to statutory demands. Under s 290(3) there is not an automatic suspension (as under r 24.10
High Court Rules). Rather, the Court is given a discretion to extend the time for compliance (which is in practice generally granted at the first call, or the papers, by an extension “until further order of the Court”).20 These matters flow from the text of s 290(3) which provides that “at the hearing [of the setting aside application], the Court may extend the time for compliance with the statutory demand”.
[33] The New Zealand bankruptcy notice regime may be contrasted with that of the United Kingdom relating to statutory demands upon personal debtors. Under the Insolvency Rules 1986 (UK), r 6.4(3) provides that (upon the filing of a setting aside application), “the time limited for compliance with the statutory demand ceases to run”. In turn, r 6.5(1) provides that (upon dismissal of the setting aside application) “the time limited for compliance with the statutory demand runs again”.
[34] In summary, the New Zealand statutory regime for bankruptcy notices extends the time for compliance to a particular time (determination of the application), whereas the United Kingdom regime for (bankruptcy) statutory demands suspends the running of time for compliance, with time resuming upon the
dismissal of the application.
20 See Group Rentals New Zealand Ltd v Pramb Wong Enterprises Ltd (1994) 8 PRNZ 113 at 116.
[35] In his supplementary submissions, Mr Burgess accepted that on a literal approach to r 24.10(1) it is possible to contend for the third interpretation (set out at [15] above). But Mr Burgess submits that the interpretation of legislation has to be governed by principle. He submits that the literal meaning of r 24.10 is anomalous when set against the “relevant Act” which, in Mr Burgess’ submission, is the Insolvency Act.
[36] Mr Burgess’s apparent assumption that the provisions of the Insolvency Act
2006 have superior legislative status to the High Court Rules is incorrect. The provisions of both are statutory, with the High Court Rules not operating merely as regulations.21
[37] It remains appropriate when interpreting provisions in Pt 24 of the High Court Rules to do so in the light of related provisions of the Insolvency Act. But there is nothing in the Insolvency Act to assist with the interpretation of the extension regime under r 24.10. What Parliament has elected to do is to deal with matters of broader framework in the Insolvency Act and to deal with matters of detail, such as the extension arrangements, through the High Court Rules. Resort to provisions of the Insolvency Act on this topic do not assist.
[38] A purpose of the 10 day period specified in the bankruptcy notice is to provide debtors with a brief further opportunity to settle a judgment debt or (if they believe they have a valid cross-claim) to prepare and file the necessary application to establish an arguable cross-claim. In cases where the Court subsequently finds that there is not an arguable cross-claim, it is unnecessary to interpret the rule as intended to provide further time thereafter for payment of the indisputable debt. The debtor will have the opportunity immediately upon the delivery of the judgment (dismissing the application) to settle the debt, negating the opportunity for the (former) creditor to file an adjudication application.
[39] Mr Burgess, in his supplementary submission, suggested that the third interpretation of r 24.10 would create a particularly harsh outcome in a situation
21 The Insolvency Act 2006 is its own statute; by s 147 Senior Courts Act 2016 the High Court Rules as set out in Schedule 2 Judicature Act 1908 (as thereafter amended) are deemed to be part of the Judicature Act.
where the debtor (challenging a bankruptcy notice) is solvent and intends to settle the debt immediately after the setting aside application is dismissed (if that occurs). In that situation, Mr Burgess submits, the debtor would “automatically commit an act of bankruptcy” on the delivery of judgment. Mr Burgess’s submission overlooks the provisions for calculation of time periods under s 35 Interpretation Act 1999. In particular, the provisions of s 35(3) govern the situation addressed in r 24.10, providing:
(3) A period of time described as ending by, on, at, or with, or as continuing to or until, a specified day, act, or event includes that day or the day of the act or event.
Accordingly, a debtor, whose setting aside application is dismissed, does not (through non-payment) commit an act of bankruptcy at the point of delivery of the judgment. Rather, the debtor has the remainder of that day in which to make payment. Given the period during which the judgment debtor will have held the judgment creditor out of its money through the duration of the setting aside application (and during which the debtor will have had time to prepare for any necessary payment), there appears nothing harsh in such a regime and certainly nothing so unfair as to suggest that is not what the legislation intended.
[40] I therefore reject the initial submissions of both Mr Burgess and Ms
Gaborieau at the hearing which involved interpreting r 24.10(1) as meaning that the
10 day period under the bankruptcy notice ceases to run when the setting aside application is filed and (if the setting aside application is dismissed) resumes at the point of dismissal either for the balance of the 10 day period remaining (when the application was filed) or for a fresh 10 day period.
[41] In this case, pursuant to the provisions of r 24.10(1) High Court Rules, Mr Burgess’s time for compliance with statutory demand came to an end at the point his setting aside application was dismissed (on 5 December 2016). An act of bankruptcy was committed on the expiry of that day.
[42] Malley & Co’s identification of the incorrect date of bankruptcy is a defect, which should be corrected under s 418(1) Insolvency Act. As the correct date 5
December 2016 is less than three months before the date on which Malley & Co filed its adjudication application, the application was in time and valid.
The possibility of extension
[43] There is no power expressly conferred on the Court to extend the debtor’s time for compliance with a bankruptcy notice beyond the point identified in r 24.10(1) High Court Rules. This situation may be contrasted with that relating to statutory demands under the Companies Act – pursuant to s 290(3) of the Act it is expressly provided that the Court may, at the hearing of the application, extend the time for compliance with the statutory demand. Any power of extension which the Court might be argued to exist under r 24.10 High Court Rules can have no application in this case because no order of extension was sought or made.
[44] It is therefore unnecessary that I consider whether there is in fact jurisdiction under r 24.10 (or otherwise) to extend the time for compliance with a bankruptcy notice. The commentary in McGechan (above at [17]) notes a likelihood that the Court will offer further time for compliance with a bankruptcy notice if a setting aside application is dismissed.22 The correctness of such an extension is open to doubt given the express wording of r 24.10(1) and the absence of an express power to extend time. In the event, it is unnecessary here that I determine whether jurisdiction to extend time exists. Associate Judge Matthews, on dismissing Mr
Burgess’s setting aside application, did not purport to further extend time for
compliance.
Issue 2: A genuinely triable counterclaim?
Mr Burgess’s legal costs and counterclaim
[45] The debt (for costs and disbursements) on which the bankruptcy notice was based stemmed from Mr Burgess’s unsuccessful application for judicial review. The review was of decisions relating to fees charged to Mr Burgess by Malley & Co as
his former solicitors. The firm had acted for him in relationship property matters.
22 Examples of such orders are found in Re Tomkies ex parte Te Puni-2000 Ltd, above n 5 and
Harrison v Harrison [2016] NZHC 2027 at [34].
[46] In a separate proceeding (commenced in 2010), Malley & Co had sued Mr Burgess for legal fees and disbursements. Mr Burgess counterclaimed. He asserted upon seven causes of action that Malley & Co had been negligent and in breach of the various duties they owed to him as his legal advisers. The trial of the 2010 proceeding eventually took place in December 2015 before Gendall J. His Honour
gave judgment on 5 May 2016.23 His Honour explained (at [11] of the judgment) the
delays which had occurred in reaching trial. He found that Malley & Co was entitled to judgment for the fees and disbursements as claimed.24
[47] His Honour then analysed the causes of action comprising Mr Burgess’s counterclaim, one by one. The counterclaim failed in all regards.25 The judgment included findings that Mr Burgess had failed to establish breach of duty, causation of damage, and (in some regards) any amount of damage. His Honour concluded that the counterclaim was “wholly unfounded”.26
[48] In June 2016, Malley & Co, having obtained judgment both on their claim for costs and on Mr Burgess’s counterclaim, had the bankruptcy notice issued. The bankruptcy notice is based not on the legal costs/counterclaim judgment (of Gendall J) but rather on the costs judgment on the judicial review application (heard by Dunningham J).
Mr Burgess’s appeal
[49] In the meantime (on 30 May 2016), Mr Burgess filed a notice of appeal against the legal costs/counterclaim judgment. The appeal is to be heard by the Court of Appeal on 25 July 2017.
Mr Burgess’s setting aside applications
[50] Mr Burgess, upon service of the bankruptcy notice, applied for an order setting aside the notice on the grounds that he has a triable counterclaim and that the
23 Malley & Co v Burgess, above n 3.
24 At [16] – [28].
25 At [29] – [97].
26 At [95].
legal costs/counterclaim judgment (of Gendall J) will be reversed by the Court of
Appeal.
[51] Associate Judge Matthews heard and dismissed Mr Burgess’s application.27
Before considering the counterclaim ground, his Honour first considered and rejected a submission that the judicial review costs judgment was wrong and that those costs should not have been awarded. His Honour noted that an appeal filed by Mr Burgess against the judicial review costs judgment had lapsed and that the judgment was therefore unchallengeable.28
[52] Associate Judge Matthews, turning to Mr Burgess’s counterclaim argument, identified the well-established test on a setting aside application which requires the applicant to demonstrate that the proposed counterclaim is genuinely triable.29
[53] His Honour found that the proposed counterclaim was genuine in that Mr
Burgess clearly proposes to pursue the claim.30
[54] His Honour then referred to the seven causes of action on which Mr Burgess bases his counterclaim. His Honour, by reference to the findings of Gendall J in the legal costs/counterclaim judgment, identified the extent to which Mr Burgess had failed to establish that he had a triable counterclaim.
[55] His Honour concluded:
[27] …the findings of Gendall J are clear, and followed a defended hearing at which Mr Burgess had an opportunity to present all evidence and arguments he wished to present in support of his case, and at which the Judge heard both evidence-in-chief and cross-examination before reaching his conclusions. On the application before me the findings of the Judge are not open for review.
[28] On 6 October 2016 Miller J, in the Court of Appeal, issued a judgment reviewing a decision of the Deputy Registrar of that Court declining to dispense with security for costs, and a further decision of the Deputy Registrar increasing security for costs.31
27 Malley & Co v Burgess, above n 4.
28 At [12].
29 Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC) at 637; Sharma v ANZ Banking Group (NZ) Ltd (1992) 6 PRNZ 386 (CA) at 389.
30 At [21].
31 Burgess v Malley & Co [2016] NZCA 484 at [10] – [12] per Miller J.
[29] His Honour observed:32
I am nonetheless unconvinced by Mr Burgess’ submissions as to the strength of his appeal. The challenge to Malley’s successful claim for unpaid fees seems to misconstrue Gendall J’s interpretation of the invoices and misrepresents the total amount owing to Malley as against the money Mr Burgess has paid to date. The appeal against the Judge’s dismissal of the counterclaim encompasses almost the entirety of the decision and appears to be an attempt to relitigate each of the findings against Mr Burgess. By way of example, he submits that there was no evidence that Malley provided any legal advice to Mr Burgess at all, which is entirely unsustainable in the face of Gendall J’s findings. On my assessment, parts of the appeal may be hopeless.
[30] His Honour went on to discuss a submission by Mr Burgess that Gendall J had failed to decide a number of his claims. At the conclusion of that discussion Miller J observed “On that basis, I agree that the merit of the appeal is not strong”.33
[31] On the basis of the findings by Gendall J, the concession made by Mr Burgess in cross-examination during the trial before Gendall J and the observations by Miller J to an extent which recognises they were only provisional, and made on the basis of the material then before him, I find that Mr Burgess has not established that he has a genuinely triable cross claim against Malley & Co sufficient to satisfy the test under s 17(7) of the Insolvency Act.
[32] For these reasons I conclude that there is no proper basis on which to set aside the bankruptcy notice.
[56] Mr Burgess did not seek a review of or appeal from Associate Judge
Matthews’ judgment.
Discussion
[57] For this hearing, Mr Burgess has again submitted that there are errors in the legal cost/counterclaim judgment and that the Court incorrectly concluded that he does not have a triable counterclaim. For the same reasons as identified by Associate Judge Matthews when refusing to set aside the bankruptcy notice, and reinforced by the fact that Associate Judge Matthews’ judgment is final, it is not open to the Court on this occasion to reach a different conclusion. That is not to say that the Court of Appeal will inevitably dismiss Mr Burgess’s appeal. It simply recognises that there
should not be relitigation in this Court of issues already determined by this Court on
32 At [10].
33 At [12].
two occasions. The possibility that the Court of Appeal might take a different view is a matter to be considered in relation to this Court’s residual discretion on an adjudication application, a matter which I come to (at [66] – [76] below).
[58] For the above reasons, Mr Burgess’s second ground of application (as to a
triable counterclaim) must fail.
Issue 3: Is this proceeding vexatious, oppressive or an abuse of process?
Mr Burgess’s submission
[59] Mr Burgess, in his written synopsis, identified in two paragraphs a
submission that Malley & Co’s proceeding involves an abuse of process:
It is submitted that the application for adjudication is an abuse of process, as given Malley and Co’s affidavits in the various proceedings as to my impecuniosity, and their failure to put forward evidence of concealed assets or income, the only purpose of seeking my bankruptcy is to derail my appeal.
Had Malley and Co any genuine belief in the availability of other than protected assets, or sufficient income to make payments, they could have sought an order for examination, and/or an attachment order. They have not.
Discussion
[60] There has been much that has been extraordinary in both the amount and the duration of litigation arising from the contract of retainer between Malley & Co and Mr Burgess. But there is nothing extraordinary in Malley & Co’s decision, in reliance upon the judgment debt and the expired bankruptcy notice, to pursue Mr Burgess’s bankruptcy.
[61] Matters alleged by Mr Burgess as to the pointlessness of his adjudication are matters which properly fall to be considered in the exercise of the Court’s discretion under s 37. The derailing of appeal rights (also relied upon by Mr Burgess) is a matter which the Court may appropriately take into account both in its exercise of its s 37 discretion and in considering whether to halt the application for adjudication under s 38.
[62] There is nothing in the circumstances of this case to justify a finding that the adjudication application involves an abuse of process. The application is pursued by Malley & Co for its appropriate purpose, namely the bankrupting of a debtor who is presumed to be unable to pay his debts. To the extent that the matters raised by Mr Burgess are relevant, they are relevant to the exercise of the Court’s discretion, to which I now turn. The matters he raises do not reflect upon the integrity of Malley
& Co’s application.
Issue 4: the Court’s discretion
Mr Burgess’s submissions and evidence
[63] I summarise the matters raised by Mr Burgess which might inform the
exercise of the Court’s discretion:
1. Strength of case on appeal
[64] Mr Burgess submits that his appeal from the legal costs/counterclaim judgment is so strong that the judgment will be set aside. The implication is that he will obtain judgment on his counterclaim. For the reasons I have identified flowing from the existing High Court judgments, it is not appropriate to reconsider the suggestion that the counterclaim has merit, this Court already having dismissed it. But Mr Burgess is entitled to have this Court take into account the possibility that he might succeed on appeal, as reflected in the observations of Miller J (quoted at [55] above) which, while assessing parts of Mr Burgess’s appeal as hopeless, impliedly recognised there may be “hope” in other aspects.
2. Derailing of the appeal
[65] Mr Burgess submits that his appeal is unlikely to proceed to its scheduled hearing in July 2017 if he is adjudicated bankrupt because of the difficulty he will face in either persuading the Official Assignee to pursue the appeal or in procuring the Assignee’s disclaimer to enable Mr Burgess himself to pursue the appeal. While Ms Gaborieau submitted that, of itself, Mr Burgess’s adjudication in bankruptcy would not legally prevent the pursuit of the appeal, I recognise that there is a real
risk for Mr Burgess that, upon his adjudication, matters may not be so arranged as to enable the appeal to proceed.
3. The timing of the appeal hearing
[66] Mr Burgess submits that the proximity of the July 2017 appeal hearing (Mr Burgess already having provided security for costs) weighs in favour of his opposition. In this regard, he referred to the concept of the proceeding being stayed pending the outcome of the appeal hearing. He might equally have addressed the submission as a request to the Court to halt the Malley & Co application under s 38
Insolvency Act for the time being, pending the outcome in the Court of Appeal.
4. Pointlessness of adjudication
[67] In his affidavit in opposition, Mr Burgess deposed:
60. The loss of the bulk of my entitlement to relationship property, and the legal costs to try to recover that property have left me impoverished. The only assets that appears to exist is my rights to legal recovery (litigation) and a small parcel of shares in Farmlands (which are also probably part of the property I hold in trust. Otherwise there are no assets available to the creditors on bankruptcy (all other assets consist of my personal effects and vehicle and which are below the maximum value of what I am able to retain).
[68] Mr Burgess submitted that his adjudication would be pointless because of his impecuniosity. He submitted that there is a relevant failure by Malley & Co to put forward evidence of concealed assets or income. He noted the failure of Malley & Co to pursue other enforcement procedures such as an order for examination or an attachment order.
[69] Beyond the brief narrative evidence I have quoted from Mr Burgess’s affidavit, Mr Burgess has not provided a detailed schedule of assets, liabilities, income and outgoings, or of any relevant dispositions in the last few years.
[70] This is accordingly not a case in which the debtor has satisfactorily established both that he is now impecunious and that the Assignee would not under the Insolvency Act recover assets of some value or contributions by Mr Burgess to his estate.
Submissions for Malley & Co
[71] Ms Gaborieau submitted that the Court ought to exercise its discretion in favour of adjudication through consideration of five established factors:
(a) How the debt was incurred
Ms Gaborieau submitted that Mr Burgess’s debt is to be distinguished from others, such as those incurred in circumstances beyond the control of the debtor or in a domestic situation.34 Ms Gaborieau identified the origin of Mr Burgess’s debt as lying in a “meritless judicial review application which essentially constituted a further attempt to litigate matters which had been resolved against him previously by the Standards Committee and LCRO”.
(b) Availability or absence of assets
Ms Gaborieau submitted that, given the limited information relating to Mr Burgess’s financial situation and history, there will be a purpose to adjudication in that the Assignee will be able to investigate Mr Burgess’s affairs to identify any recoverable assets or income.
(c) Ability of debtor to repay
Ms Gaborieau submits that Mr Burgess’s recent conduct, in providing security (of $6,600) for costs on his appeal, indicates an ability and willingness to devote resources to matters other than the satisfaction of his existing creditors. She submits that to the extent that it may transpire that Mr Burgess’s estate is devoid of assets, there will nevertheless be a valid purpose to bankruptcy in that, for the period of Mr Burgess’s bankruptcy, the commercial community will be
protected.
34 See, for instance, Re Taylor ex parte Greenwood (1992) 4 NZBLC 102,875 and Gibson, ex parte
Gardiner HC Auckland B882-IM02, 3 April 2003.
(d) Actions and wishes of creditors
Ms Gaborieau correctly submits that the Court should properly consider the wishes of Malley & Co as an established creditor. It may be added that the age of the unmet judgment debt (ordered on 27
November 2014) is to be taken into account. Malley & Co appropriately awaited judgment on Mr Burgess’s counterclaim (entered on 5 May 2016) before having the present bankruptcy notice served.
(e) Public interest/commercial morality
Ms Gaborieau submits that considerations of public interest and commercial morality are significant factors in this case. She submits that Mr Burgess, notwithstanding his continued resort to the Courts to establish his perceived entitlements, has persistently (from late-2014) failed to meet his costs obligations arising from unsuccessful litigation.
Discussion
[72] In a sense, the competing submissions did not directly address one another. While Ms Gaborieau’s submissions emphasised factors which weighed against the dismissal of the adjudication application as a matter of the Court’s discretion under s 37 of the Act, Mr Burgess’s submissions (through their reference to the concept of stay) might have been collected more appropriately under a submission based on the Court’s jurisdiction, under s 38 of the Act, to halt an adjudication proceeding.
[73] As matters stand, many factors weigh in favour of Mr Burgess’s adjudication in bankruptcy at this point. But what marks out this case is the imminent hearing of Mr Burgess’s appeal in relation to the legal costs/counterclaim judgment. On the basis of interlocutory rulings already made by the Court of Appeal, it cannot be said that the appeal is completely hopeless. A strict reading of the observation of Miller J (above at [55]) implies otherwise.
[74] Ms Gaborieau submitted that it would be inappropriate to await the outcome in the Court of Appeal because, on Mr Burgess’s track record of litigation, it can be anticipated that (if unsuccessful on his appeal) he would immediately pursue leave to appeal to the Supreme Court. I do not find that to be a compelling factor against halting the adjudication application for the time being. That is for two reasons. First, any application made to the Supreme Court for leave to appeal would be doomed to failure because Mr Burgess’s intended counterclaims were factually based and do not raise issues which would justify a grant of leave. Secondly, the conditions which I will attach to an order halting the adjudication application will entitle Malley & Co, if the Court of Appeal dismisses Mr Burgess’s appeal, to return to this Court for an adjudication order following the Court of Appeal’s rejection of Mr Burgess’s appeal grounds.
[75] Given the likelihood that the Court of Appeal will give its judgment within a short period after the July 2017 hearing, I conclude on a fine balance that it is appropriate to await that event by ordering a halt under s 38 of the Insolvency Act. The halt will be on conditions which ensure that Malley & Co may obtain an adjudication order if there is any failure in relation to Mr Burgess’s diligent pursuit of the appeal.
[76] But for the pending hearing in the Court of Appeal on the legal costs/counterclaim judgment, I would have now adjudicated Mr Burgess bankrupt. The order which I make below, halting the application for the time-being, is therefore one which, in the event Mr Burgess is unsuccessful on his appeal, simply postpones the date on which Mr Burgess would be adjudicated bankrupt.
Orders
[77] I order:
(a) The defect in the identification (in the adjudication application) of the date of the Act of bankruptcy is cured by replacing in paragraph [2](c) the words “4 July 2016” with the words “5 December 2016” and by replacing the words “within 10 working days from 20 June 2016, the date the bankruptcy notice was served on the debtor (he was served
6.30 pm on Friday 17 June 2016)” with the words “by 5 December
2016, being the date to which the time for compliance with the bankruptcy notice was extended under r 24.10 High Court Rules”.
(b)Pursuant to s 38(1) Insolvency Act 2006, the application for adjudication is halted on the following terms and conditions and for the following period:
(i)The judgment debtor is to diligently pursue and take all directed or required steps in relation to his appeal in CA
251/2016, including through attendance at the scheduled hearing on 25 July 2017, with leave to the creditor to have the Court reconvene a hearing of this proceeding on three days’ notice if there is a failure of diligent pursuit;
(ii) The halt will last until the delivery of the Court of Appeal’s
judgment in CA 251/2016;
(iii)In the event the judgment debtor’s appeal in CA 251/2016 is wholly unsuccessful, the Deputy Registrar is to set this proceeding down before me on three days’ notice for the making of an order of adjudication; and
(iv)In the event the judgment debtor’s appeal in CA 251/2016 is successful, the Deputy Registrar is to allocate a case management conference by telephone on the first available date after notification of the appeal outcome.
Case management direction
[78] For case management purposes, and for monitoring of the progress of the appeal, I allocate a case management conference (by telephone) (Associate Judge Osborne) at 2.00 pm, 13 July 2017, but with leave to the parties to request an earlier conference if appropriate.
Associate Judge Osborne
Solicitors:
Parker Cowan Lawyers, Queenstown
Judgment debtor – self represented
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