Maskery v Mitchell HC Auckland CIV 2009-404-7882

[2010] NZHC 666

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-7882

IN THE MATTER OF     of the Insolvency Act 2006

ANDIN THE MATTER OF  of the bankruptcy of DAVID GARRY MITCHELL

BETWEEN  LYNDA ROBYN MASKERY Judgment Creditor

ANDDAVID GARRY MITCHELL Judgment Debtor

Counsel:         A Williamson for Creditor

F Power for Debtor

Judgment:      5 May 2010 at 5 pm

COSTS JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 5 May 2010 at 5 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:
Jackson Russell, Auckland

Rennie Cox, Auckland

MASKERY V  MITCHELL HC AK CIV-2009-404-7882  5 May 2010

[1]      This  judgment  concerns  cross  applications  for  costs  on  a  bankruptcy proceeding that has been withdrawn following payment of the judgment debt on which the proceeding was based.  The issue for determination is who should have costs, the judgment creditor or the judgment debtor.

The Bankruptcy Proceeding

[2]      The judgment creditor, Ms Maskery, obtained judgment against the judgment debtor,  Mr  Mitchell,  in  the  Family  Court  on  22  June  2009  for  the  sum  of

$312,933.12 together with interest at the rate of 4% per annum from 22 June 2009. In terms of the judgment, Mr Mitchell, was given four months to pay.

[3]      Mr Mitchell did not pay the judgment debt and on 1 December 2009 Ms Maskery requested the issue of a bankruptcy notice.  The notice was served on Mr Mitchell on 18 December.   As Mr Mitchell failed to take any steps to satisfy the notice, Ms Maskery filed an application for an adjudication order on 4 February

2010.

[4]      Ms Maskery’s application was listed for first call on 16 March 2010. Four days beforehand Mr Mitchell paid the judgment debt.   The application was withdrawn, but the parties could not agree on the issue of costs.

[5]      On 16 March I made directions for the exchange of costs memoranda.  It is against this background that each side pursues an order for costs.   I heard further from counsel on 20 April 2010 and reserved my decision in order to provide reasons in writing, as counsel requested.

[6]      Ordinarily Ms Maskery would anticipate an order for costs as compensation for the costs incurred on the unsatisfied bankruptcy notice and for the costs incurred on the bankruptcy proceeding, but Mr Mitchell contends there is good reason why he should have costs.

Mr Mitchell’s position

[7]      Mr Mitchell says he had difficulty paying the judgment debt because he was unable to sell a property at Mangawhai that had to be sold in order for him to satisfy the debt.  The reason, as advanced by counsel for Mr Mitchell at the hearing, was that Mr Mitchell had difficulty finding a buyer because of the then state of the property market and that once he did find a buyer, the buyer’s offer of $440,000 was substantially less than the valuation of $580,000 that had been placed before the Family Court.   Counsel indicated that eventually, and reluctantly, Mr Mitchell decided to accept the offer at some considerable cost to himself and that only then was he in the position where he was able to satisfy the judgment debt. There was

$420,000 for distribution after payment of costs out of which Mr Mitchell was required to pay the judgment debt of over $300,000.

[8]      Counsel for Mr Mitchell went on to submit that:

a)       The short point is that the bankruptcy proceeding has occurred in the context of a bitterly fought matrimonial property dispute, in which Mr Mitchell was left to sell a property that was overvalued in a difficult market.

b)There was no basis to assume Mr Mitchell would not eventually be able  to  sell  and  be  in  a  position  to  pay the  judgment  debt.    Ms Maskery should have waited until the property was able to be sold at the best price possible and not pursued her bankruptcy proceeding. As it was, Ms Maskery got the lion’s share.

c)      The overall justice of the case requires that the Court take these circumstances into account.  It would be unjust if Ms Maskery were

now awarded costs.   Indeed, in the overall justice of the case, Mr

Mitchell should have costs.

[9]      In his costs memorandum counsel for Mr Mitchell also raised other concerns about Ms Maskery’s failure to strictly comply with the Family Court’s orders to transfer her shares in the company that owned the Mangawhai property and to make available on the transfer of the shares a notice of resignation as director.   The documents were signed but held until 10 March 2010 by Ms Maskery’s barrister who said in correspondence that he was awaiting advice from Mr Mitchell’s barrister as to how Mr Mitchell proposed to deal with his obligations under the judgment.

[10]     The concerns were not pursued at the hearing and need not be dealt with further.  There was no suggestion at the hearing that the holding of the documents contributed in any material way to Mr Mitchell’s failure to sell the property and satisfy the judgment debt in the time required.  The reasons counsel advanced for Mr Mitchell’s delay, as I have indicated, were the problems with the property market and finding a suitable buyer.

Discussion

[11]     The issue of costs can be dealt with in short order.

[12]     I accept that Mr Mitchell was faced with the difficult task of endeavouring to sell the property with an apparent excess of value over the judgment debt in a market that was not favourable and where he had little prospect of achieving the figure at which the property had earlier been valued.

[13]     However, I accept, as counsel for Ms Maskery submitted, this is a clear case where costs should be awarded.  She contended that:

a)       The judgment debt should have been satisfied by a date four months after the date of the judgment that was issued on the 22 June 2009 and it was not.

b)There was an adjournment to 22 October in the Family Court but the debt was still not paid.   No extension was sought or granted.   No appeal was lodged.

c)       Eventually on 1 December 2009 Ms Maskery resorted to serving a bankruptcy notice, which she was entitled to do.

d)Mr Mitchell failed to take steps in compliance with the notice and the application for an order for adjudication inevitably followed.  It was filed on 4 February 2010.

e)       Payment,  when  eventually  made,  occurred  four  days  before  the hearing date, and by then Ms Maskery had incurred significant costs in this Court.  Mr Mitchell failed to accept her open offer to let costs lie where they fall and she has been put to yet further cost.

f)        In  these   circumstances   nothing  has   displaced   her   prima   facie entitlement to costs.

[14]     Mr Mitchell was required to pay the judgment debt when the time allowed for payment by the Family Court’s order arrived.  The debt was at that point owing and due.   Almost six weeks passed and it remained unpaid.   Mr Mitchell was in the circumstances vulnerable to a bankruptcy notice, as he was to a bankruptcy proceeding when he failed to take any steps in response to the notice.  Mr Mitchell had made no challenge to the Family Court’s order by way of appeal or attempt to have the Family Court revisit the order.  Furthermore, there is no evidence that he had the ability to raise by borrowing against the land sufficient cash to meet the debt or any other access to the necessary funds at short notice on a liquid assets basis.  On Mr Mitchell’s own acknowledgement, he lacked the ability to pay the judgment debt until 12 March 2010, well after the date it was due for payment.

[15]     It was perfectly appropriate in these circumstances for Ms Maskery to serve a bankruptcy notice, as it was for her to file her bankruptcy proceeding when Mr Mitchell took no steps to challenge the notice.

[16]     When the application was called and withdrawn on 18 March 2010, Ms Maskery was prepared to let costs lie where they fall but that offer was rejected.  Mr Mitchell elected to proceed, and to involve himself and Ms Maskery in further legal costs.

[17]     In these circumstances, I do not accept that the bankruptcy notice and the application for an order for adjudication were inappropriate.  On the face of it, the bankruptcy notice was properly issued and the bankruptcy proceeding properly commenced.  As such, the starting point when dealing with costs is that the judgment creditor has a prima facie entitlement to costs on this proceeding in the usual way.

[18]     I agree with counsel for Ms Maskery that nothing has been raised that would displace that entitlement.

[19]     For completeness, I note Mr Mitchell’s reliance on the decision of Asher J in Lawson v Perkins (CIV2008-404-2473, 20 November 2008), but that decision does not advance his position.  In that case the debtor was found to be solvent on the basis that he had assets in excess of $3 million and access to significant quantities of funds at short notice.   There was no question of his ability to pay the debt had he been willing.

[20]     I accept Ms Williamson’s submission that the Court of Appeal’s decision in Holdgate v Blocassa Limited & Anor (CA 131/06, 17 April 2007) is more apposite. There, the Court said:

Section 26 of the Insolvency Act provides that a Court may dismiss a bankruptcy petition if it is satisfied that the debtor is able to pay its debts.  This means that the debtor must be able to pay his or her debts as they are incurred, either immediately or within a reasonable time.   If unable to do this, the debtor may be declared bankrupt even though he or she has more assets by value than liabilities.  Put another way, a debtor will not necessarily avoid bankruptcy by showing a positive balance sheet.  It is the capacity to pay either immediately or within a reasonable time that is critical.

Result

[21]     In all the circumstances I am satisfied that the judgment creditor is entitled to an award against the judgment debtor on this bankruptcy proceeding calculated on a

category 2 basis together with appropriate disbursements to fixed by the Registrar. I

order accordingly.

Associate Judge Sargisson