Malley & Co v Burgess

[2016] NZHC 2920

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2016-409-000439 [2016] NZHC 2920

IN THE MATTER	of the Insolvency Act 2006
AND
IN THE MATTER	of the Bankruptcy of GARY OWEN BURGESS
BETWEEN	MALLEY & CO Judgment Creditor/Respondent
AND	GARY OWEN BURGESS Judgment Debtor/Applicant

Hearing:	29 November 2016
Appearances:	M Parker and A J Gaborieau for Judgment Creditor/Respondent Judgment Debtor/Applicant self represented
Judgment:	5 December 2016

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      On 27 November 2014 the High Court, in a judgment by Dunningham J on proceeding CIV-2013-409-1385, ordered that the applicant (Mr Burgess) pay to the respondent (Malley & Co) costs and disbursements in the sum of $43,844.29.1   The order was sealed by the Court on 1 December 2014.

[2]      Mr Burgess has not paid any part of this sum.

[3]      On 2 June 2016 Malley & Co issued a bankruptcy notice to Mr Burgess in relation to this order.  The bankruptcy notice was served on Mr Burgess on 18 June

2016.  On 1 July 2016 Mr Burgess applied for an order setting aside the bankruptcy

notice.

1      Malley & Co v Burgess [2014] NZHC 2981.

MALLEY & CO v BURGESS [2016] NZHC 2920 [5 December 2016]

[4]      On  proceeding  CIV-2010-009-2712,  Malley  &  Co  sued  Mr  Burgess  for unpaid professional fees in a total sum of $56,303.70.  This claim had initially been brought in the District Court, but was transferred to this Court after Mr Burgess filed a counterclaim seeking judgment for $894,000, together with general and exemplary damages in the sum of $150,000 each.

[5]      On 5 May 2016, the Court entered judgment for Malley & Co in the sum of

$54,594.81 and dismissed the counterclaim by Mr Burgess.2

[6]      In his application to set aside the bankruptcy notice issued by Malley & Co Mr Burgess relies on having a counterclaim against Malley & Co, which is the counterclaim to which I have referred and which has been dismissed by the Court. Mr Burgess has lodged an appeal against the judgment of this Court and says in his application to set aside the bankruptcy notice that it is inevitable that the Court of Appeal will grant the appeal.  As a result he will be owed money by Malley & Co, not vice versa.

Application of the relevant provisions of the Insolvency Act 2006

[7]      Before  a  person  may  be  adjudicated  bankrupt,  that  person  must  have committed an act of bankruptcy, within a period of three months before the filing of the application.3  An act of bankruptcy is committed if a creditor has obtained a final judgment against a debtor for a sum of money, execution of the judgment has not been halted by a court, the debtor has been served with a bankruptcy notice, and the debtor has not within a specified time either complied with it or satisfied the Court that he or she has a cross claim against the creditor.4    In this case, most of these requirements are satisfied.  The bankruptcy notice is based on a final judgment of this Court, execution of that judgment has not been halted by this Court, Mr Burgess

has been served with a bankruptcy notice, and he has not complied with it.

2      Malley & Co v Burgess [2016] NZHC 907 at [100].

3      Insolvency Act 2006, s 16.

4      Section 17.

[8]      That leaves only the question of whether he can satisfy the Court that he has a cross claim against Malley & Co which is within the definition of a cross claim in s 17(7).

[9]      Section 17(7) of the Insolvency Act provides:

… cross claim means a counterclaim, set-off, or cross demand that –

(a)     is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and

(b)     the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.

[10]     Proceeding CIV-2013-409-1385 in which Dunningham J gave judgment was an application by Mr Burgess for judicial review of two decisions of the Legal Complaints  Review  Officer  (LCRO)  which  had  upheld  two  decisions  of  the Standards Committee in relation to fees charged to Mr Burgess by Malley & Co.5

Mr Burgess also sought judicial review of decisions made in District Court proceedings relating to Malley & Co’s unpaid fees.  The District Court had refused to enter judgment by default on a counterclaim made by Mr Burgess against Malley

& Co on an earlier proceeding brought by Malley & Co for judgment to recover its then outstanding fees.6

[11]     Part of the argument presented by Mr Burgess on the application before me is that the award of costs in that case, which Malley & Co now seeks to enforce, was made as a result of a judgment which was wrong.  He says that incorrect facts were put before the Court on that proceeding and if correct facts had been put before the Court, the decision would have been the reverse and costs would not have been awarded against him. As he put it, the process miscarried.

[12]     Mr Burgess lodged an appeal with the Court of Appeal against the judgment of the Court issued by Dunningham J.  That appeal later lapsed because he did not

5      Burgess  v  Tait  [2014]  NZHC  2408.  The  LCRO  is  constituted  under  the  Lawyers  and

Conveyancers Act 2006.

6 When it was found that due to the fees being reviewed as a result of a complaint to the Lawyers Complaints Service, this proceeding by Malley & Co was stayed by s 161 of the Lawyers and Conveyancers Act 2006 until the relevant decisions of the LCRO had been issued. In the event Malley & Co issued a fresh proceeding, which is the proceeding described in para [4] above.

pay the security for costs which the Court of Appeal required.  The judgment is not therefore subject to any challenge, nor can it be.

[13]     Mr Burgess says that the sum claimed by Malley & Co in proceeding CIV-

2010-009-2712 differed by approximately $10,000 from the sum said to be owing for fees when Dunningham J was considering the applications for judicial review. Mr Burgess says that when the Court of Appeal determines his appeal on CIV-2010-

009-2712 it will be seen that the judgment of Dunningham J was based on wrong factual material and, therefore, costs should not have been awarded against him.

[14]     The second limb of his argument is that on appeal his counterclaim will be successful, with the result that Malley & Co will be liable to him.

[15]     Mr Parker says that the only issue before the Court on this application is whether Mr Burgess can show that he has a cross claim in terms of the definition in s 17(7).   On Mr Burgess’ first point, he says the decision of Dunningham J was a decision on points of law and that she did not make any findings in relation to the sums owing on bills of costs.  She was not asked to make final findings of fact.  She dealt with the terms of the LCRO orders as they stood.   Her decision is final and binding.  As to the prospect that there may be a cross claim by Mr Burgess against Malley & Co, Mr Parker says the Court has the benefit of knowing that the alleged cross claim relied on for the purposes of s 17(7) has not only been formulated, but has been determined against Mr Burgess.   Mr Parker says that whilst there is an appeal against that judgment, it has been subject to unfavourable comment by one Judge of the Court of Appeal, when considering a review of the decision of the Registrar of the Court in relation to security for costs, and that security for costs as

assessed by the Court has not yet been paid.7   Mr Burgess has filed an application for

leave to appeal to the Supreme Court against the decision of the Court of Appeal requiring security to be paid.

Discussion

[16]     A review of the judgment of Dunningham J shows, as one would expect on an application for judicial review, that the Court made a series of findings on points of law.  The Court summarised the issues raised by Mr Burgess and then dealt with each issue in turn.  The decision does not discuss the correctness or otherwise of the sums claimed to be owing by Malley & Co for fees.   Indeed, there is only one mention of the amount of fees in the entire judgment.  The judgment deals with the legality of the decision-making processes of the District Court and the LCRO, which were called into question.  This is clear from the conclusions reached by the learned Judge, issue by issue, throughout the judgment.

[17]     As  I  understand  Mr  Burgess’ argument,  he  expects  that  success  on  his counterclaim will show that the conclusions reached by the LCRO in relation to the amount of fees owing were wrong.  That, however, is not the issue.  The challenges made before Dunningham J to the decisions of the District Court and the LCRO were legal challenges, not challenges in relation to the factual findings which were made.  I find that there is no substance in Mr Burgess’ argument that the judgment of Dunningham  J  will  be  found  to  have  been  wrong,  when  his  appeal  on  his counterclaim is determined, and therefore no prospect that the award of costs made against Mr Burgess on that proceeding will be set aside.

[18]     I turn to consider the question of whether Mr Burgess has a cross claim against Malley & Co.

[19]     The  first  point,  conceded  by  Malley  &  Co,  is  that  the  cross  claim  he maintains he has could not have been used as a defence to the award of costs on his action for judicial review as, although the counterclaim was extant at that time, the judicial review proceeding was not an appropriate time for it to be argued.

[20]     The issue to be decided, however, is whether in terms of s 17(7) it can be said that Mr Burgess has a counterclaim against Malley & Co.  For this to be so, it must be shown that the counterclaim is genuinely triable.8

[21]     In Sharma v ANZ Banking Group (New Zealand) Ltd,9  the Court of Appeal observed that the words “genuine” and “triable” require the debtor to demonstrate that he has a claim of true substance which he genuinely proposes to pursue.  There can be little doubt that Mr Burgess proposes to pursue his claim.   It is quite a different matter whether that claim is of true substance.  Factors pointing away from that conclusion are evident from the judgment of Gendall J.10

[22]     In  his  counterclaim  Mr  Burgess  brought  seven  causes  of  action  against Malley & Co, three based on alleged negligence, one alleging breach of retainer, two alleging breach of fiduciary duty, and four on a variety of bases which are discussed by the learned Judge at paragraphs [73] – [80].   These cover such allegations as malicious civil prosecution and use of civil proceedings, abuse of process, and fraud. All causes of action were dismissed.   The judgment contains passages which are overtly  critical  of  Mr  Burgess’  claims.    Contrary  to  the  allegations  made  by Mr Burgess, conclusions reached by the learned Judge include descriptions of the conduct of Malley & Co as “professional, sound and proper” and “pragmatic and expedient”, and a finding “I reject the claim that there has been any breach of fiduciary  duty  owed  by  Malley  &  Co  to  Mr  Burgess  as  pleaded  in  any  way

whatever”.11

[23]     Apart  from  not  establishing  his  allegations  in  relation  to  the  conduct  of Malley & Co, Mr Burgess also failed to establish that anything they did caused him the loss which he maintained he had suffered.  A key plank of his case was that the actions of Malley & Co had caused him to lose a property known as Medbury, at a mortgagee sale.  On this point, the Judge concluded “It is difficult to reach any other conclusion than the fact here [sic] that Mr Burgess, if he has suffered losses, has

been the author of his own misfortune”.12     As Mr Parker correctly submits, Mr

Burgess failed to establish that anything Malley & Co did had caused him loss.

(New Zealand) Ltd (1992) 6 PRNZ 386 (CA) at 389.

9      Sharma v ANZ Banking Group (New Zealand) Ltd, above n 5, at 389.

10     Malley & Co v Burgess, above n 2.

11     At [45], [62] and [71].

[24]     On this point, the Judge noted that in cross-examination Mr Burgess had conceded that he was not able to support any of the heads of damage that he had set out in his pleadings.  Having observed that, his Honour said:13

…   On their face it is difficult to come to any other conclusion but that largely his claim for these amounts is entirely fanciful.  As one example of this, Mr Burgess’ allegation that he has lost $395,000 representing the value of the farm property and this loss is due to him from Malley & Co.  That farm property, the Medbury property, was sold from under Mr Burgess by TSB in a legitimate mortgagee sale consequent upon his repeated and prolonged  defaults  in  making  payments  he  had  agreed  to  under  the mortgage.

[25]     His Honour went on to conclude, on this point:14

I find there is no legal or rational basis for Mr Burgess’ allegation that Malley & Co are liable for this $395,000 amount or that Mr Burgess might ever have had an interest in the Medbury property (after repayment of any mortgage) that would entitle him to such a sum, even if he could support a valuation of such amount.

[26]     Mr Parker says that the passages I have quoted, and other passages from the judgment which equally strongly reject Mr Burgess’ contentions, together with Mr Burgess’ concession in cross-examination, give a clear indication of the conclusive and unassailable nature of the decision of the Court against Mr Burgess.

[27]     Mr Burgess sought to explain the reason that he had not paid the sums owing to his mortgagee, TSB, leading to a mortgagee sale.  His explanation seemed to be derived from a view that the property should have been vested in some way other than the way which Malley & Co vested it, but I am quite unable to discern how, even if this is so, this is relevant to Mr Burgess not having met commitments on the mortgage which he was required to meet.  In any event, 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.15

[29]     His Honour observed:16

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”.17

[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.

Outcome

[33]     The application to set aside a bankruptcy notice is dismissed.

15     Burgess v Malley & Co, above n 7.

[34]     Mr Burgess will pay costs to Malley & Co on a 2B basis together with

disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Parker Cowan Lawyers, Queenstown

Judgment Debtor – self represented