Mason v Mason

[2020] NZHC 2503

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-774

CIV-2020-404-799 [2020] NZHC 2503

UNDER

the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of Alexander Charles Mason

BETWEEN

WENDY ANNE MASON

Judgment creditor

AND

ALEXANDER CHARLES MASON

Judgment debtor

Hearing:	17 September 2020
Counsel:	T M Molloy for judgment creditor G J Thwaite for judgment debtor
Judgment:	24 September 2020

JUDGMENT OF KATZ J

This judgment was delivered by me on 24 September 2020 at 3:00 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Spencer Legal, Auckland

G J Thwaite, Abraham Lincoln Chambers Limited, Auckland Counsel:    T M Molloy, Barrister, Auckland

MASON v MASON [2020] NZHC 2503 [24 September 2020]

Introduction

[1]    In 2012, Alexander Mason’s wife, Wendy  Mason, was diagnosed with dementia.  Sadly,  a family dispute arose over her care arrangements.  This led to   Mr Mason falling out with the couple’s two daughters, Vicki Triezenberg and Michelle Richardson.

[2]    Following a family mediation in 2016,  the  Family  Court  appointed Michael Allen, an estate planner, to be Mrs Mason’s property manager and welfare guardian. The order was made by consent.

[3]    In 2019, Mr Mason  applied  to  have  Mr  Allen  removed  from  his  role.  Mr Mason’s application was unsuccessful, and the Family Court awarded costs of

$55,025 against him.1

[4]    Mr Mason then appealed to this Court. His substantive appeal was unsuccessful, although the Family Court’s costs award was reduced to $46,500.2 Costs of $13,220.10 were awarded against Mr Mason in respect of the appeal.

[5]    Mr Mason has not paid either of the costs’ awards. As a result, bankruptcy notices were served on him on 4 June 2020, one in respect of each debt. Mr Mason now applies to have those notices set aside.

Further background

[6]    A large proportion of Mr and Mrs Mason’s assets were settled into two trusts, the Mamari Trust (settled in 1994) and the Mamari (No 2) Trust (settled in 2013).  Mr and Mrs Mason were trustees of both trusts until they were removed by this Court in 2019.3 Mrs Mason was removed on the ground of incapacity. Mr Mason was removed because Fitzgerald J found that his deep hostility to his co-trustees and two of the beneficiaries of the trust meant that he was no longer able to discharge his duties as a trustee in a fair and impartial manner. Her Honour found that Mr Mason’s

1      Mason v Mason [2019] NZFC 1021.

2      Mason v Mason [2019] NZHC 3092.

3      Triezenberg v Mason [2019] NZHC 14, (2019) 5 NZTR 29-001.

hostility had resulted in significant dysfunction in the operation of the trusts and an unsustainable dissipation of trust assets, including large sums of trust money spent on legal fees.4

[7]    The remaining trustees of the trusts are Ms Triezenberg and Paul Dodd, who was the accountant for the Mason family and their associated interests for many years. Mr Mason requested that the trustees meet the costs awards against him, or provide him with sufficient funds to pay the costs. Ms Triezenberg recused herself from dealing with that request. Mr Dodd, acting alone, declined the request.

[8]    In Mr Mason’s affidavit of 3 July 2020, sworn in support of the application to set aside the bankruptcy notice, Mr Mason advanced four proposals to either compromise or secure the debt. None of those proposals were acceptable to the judgment creditor.

Relevant legal principles

[9]A creditor can apply for a debtor to be adjudicated bankrupt if:5

(a)the debtor owes at least $1000 to the creditor or creditors bringing the application;

(b)the debtor has committed an “act of bankruptcy” at most three months before the application is filed;6

(c)the debt is of a certain specifiable amount; and

(d)the debt is payable immediately or at a certain date.

[10]   Here, the act of bankruptcy relied on is the failure to comply with a bankruptcy notice.7 A debtor commits an act of bankruptcy if he or she has been served with a bankruptcy notice and has not, within the time specified, complied with the

4      Triezenberg v Mason [2019] NZHC 14, (2019) 5 NZTR 29-001 at [125]–[130].

5      Insolvency Act 2006, s 13.

6      Insolvency Act 2006, s 13(b); redundantly, see s 16 of the same Act.

7      Insolvency Act 2006, s 17.

requirements of the notice, or satisfied the court that he or she has a cross-claim against the creditor.8

[11]   Section 29 of the Insolvency Act 2006 (“Act”) sets out the form that a bankruptcy notice must take. It relevantly provides:

29 Form of bankruptcy notice

(1)   The bankruptcy notice must—

(a)be in the prescribed form; and

(b)require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order,—

(i)to pay the amount owing, plus costs; or

(ii)to give security for the amount owing that satisfies the court or the creditor; or

(iii)to compromise the amount owing on terms that satisfy the court or the creditor.

[12]   The correct interpretation of s 29(1)(b)(iii) was at issue in Commissioner of Inland Revenue v Wilson, which was an appeal against a High Court decision approving a compromise proposal by Mr Wilson in relation to a debt that he owed the Commissioner of Inland Revenue (the Commissioner).9 The effect of that approval was that the bankruptcy notice was deemed to have been complied with.

[13]The issue on appeal was whether:10

(a)the High Court has jurisdiction, either under s 29 of the Act or inherently, to approve a payment proposal by a debtor served with a bankruptcy notice; or

(b)such a proposal can only be made (and approved) pursuant to the provisions in subpart 2 of part 5 of the Insolvency Act 2006, which contains a comprehensive regime dealing with payment proposals to creditors by insolvent debtors.

8      Insolvency Act 2006, s 17.

9      Commissioner of Inland Revenue v Wilson [2017] NZCA 100.

10     Commissioner of Inland Revenue v Wilson [2017] NZCA 100 at [3].

[14]   The Court of Appeal observed that, patently, the purpose of s 29 is to set out the requirements for a valid bankruptcy notice. Further and “equally obviously” the purpose of s 29 is not to confer on the High Court a power to approve a compromise.11 Rather:12

The meaning of the words in s 29(1)(b)(iii) of the Insolvency Act is that the option of compromising the debt to the satisfaction of the Court or the creditor (as the case may be) must be spelt out to the debtor in the bankruptcy notice. But those words do not confer on the Court power to approve a compromise. That power resides in s 333 in subpt 2 of pt 5 of the Insolvency Act.

[15]The Court explained its reasoning as follows:

[25]      For the Commissioner, Ms Courtney submitted the Court should construe “Court” in s 29(1)(b)(iii) as referring to the Court in its role in approving proposals under subpt 2 of pt 5, and “creditor” as unrelated to that regime. Thus, Ms Courtney was accepting that a debtor can reach a compromise with a creditor outside the pt 5 subpt 2 regime.

[26]      We substantially agree. In our view, Parliament has used the disjunctive conjunction ‘or’ in s 29(1)(b)(iii) as meaning “on terms that satisfy the Court or the creditor as the case may be” or “whichever is applicable”. There is some support for this interpretation in the prescribed form of bankruptcy notice which directs the judgment debtor:13

[Y]ou must secure or enter into a new formal agreement with the judgment creditor or, alternatively, obtain the High Court’s approval of terms of payment.

[27]This interpretation also accommodates these considerations:

(a)   A word in the singular includes the plural and words in the plural include the singular.14 Thus “creditor” in s 29(1)(b)(iii) includes creditors, and creditors” in s 326(1) includes creditor.

(b)   The Court cannot approve the proposal (in other words, cannot be

“satisfied” — to use the word in s 29(1)(b)(iii)) unless the creditor or creditors have accepted the proposal.15

(c)   A debtor can compromise a debt with a creditor outside the Scheme mandated in subpt 2 of pt 5. Such a compromise:

·does not require the Court’s approval, nor would such approval be appropriate (for the reasons set out in [29] below);

11     Commissioner of Inland Revenue v Wilson [2017] NZCA 100 at [22].

12     Commissioner of Inland Revenue v Wilson [2017] NZCA 100 at [30].

13     See the High Court Rules 2016, sch 1.

14     Interpretation Act 1999, s 33.

15     Insolvency Act 2006, s 333.

·would be a basis for the Court to set aside the bankruptcy notice, if it was not withdrawn by the creditor; and

·means the Court could not, pursuant to s 36 of the Insolvency Act, adjudicate the debtor bankrupt on the s 17 ground of failure to comply with the bankruptcy notice, because the notice would have been complied with.

[16]   The Court of Appeal also rejected an argument that the High Court had an inherent jurisdiction to approve a payment proposal by a debtor, when the creditor or creditors have rejected the proposal. “Such an inherent jurisdiction would cut right across the proposals regime in subpt 2 of pt 5 of the [Act].”16

Mr Mason’s grounds for seeking to set aside the bankruptcy notice

[17]   Mr Thwaite, counsel for Mr Mason, advanced three arguments in support of his application to set aside the bankruptcy notices:

(a)Mr Mason has made appropriate compromise proposals, which should satisfy the court (in terms of s 29(1)(b)(iii)) despite the proposals not being acceptable to the judgment creditor; and/or

(b)Mr Mason has made a proposal to provide appropriate security, which should satisfy the court (in terms of s 29(1)(b)(ii)) despite the proposal not being acceptable to the judgment creditor; and/or

(c)the bankruptcy notices are defective and invalid.

Is the court able to set aside a bankruptcy notice on the basis it is “satisfied” as to the terms of a proposal, where the judgment creditor has rejected that proposal?

[18]   I will deal with the first two arguments together, as they are closely related. Mr Thwaite accepted that, in light of  the  Court  of Appeal’s  decision  in  Wilson, Mr Mason cannot ask this Court to approve one of the four proposals he has put forward to the judgment creditor (three of which are compromise proposals and one of which is a proposal to provide security pending future payment). Mr Thwaite

16     Commissioner of Inland Revenue v Wilson [2017] NZCA 100 at [38].

attempted to distinguish Wilson, however, on the basis that Mr Mason is not seeking any such approval. Rather, he is simply asking the Court to find that it is satisfied with the terms of one or more of the proposals. If the Court is so satisfied, the judgment creditor will not be bound to accept  the proposal.  Rather, the creditor will simply  be precluded from pursuing bankruptcy. Other creditor’s remedies would remain available.

[19]   I reject the distinction Mr Thwaite seeks to draw between the Court “approving” a proposal and being “satisfied” as to its terms as being artificial, contrary to the overall scheme of the Act, and (significantly) contrary to the Court of Appeal’s decision in Wilson. In particular, the Court of Appeal in Wilson concluded that the use of the word “Court” in s 29(1)(b)(iii) refers to the Court in its role in approving proposals under subpt 2 of pt 5.17 Hence:18

The Court cannot approve the proposal (in other words, cannot be “satisfied” — to use the word in s 29(1)(b)(iii)) unless the creditor or creditors have accepted the proposal.

(Emphasis added)

[20]   The Court of Appeal’s reasoning in Wilson is directly on point. This Court cannot be “satisfied” as to the terms of one or more of Mr Mason’s proposals unless the judgment creditor has first accepted or agreed to that proposal.

[21]   I note that although the subsection in issue in Wilson was s 29(1)(b)(iii), the Court of Appeal’s reasoning applies equally to s 29(1)(b)(ii). Both an offer to give security for an amount owing (pending future payment) and an offer to compromise the amount owing are “proposals” in terms of s 326 of the Act. The court’s role in relation to such proposals is set out in subpt 2 of pt 5. Section 29 does not confer a more expansive role on the Court in relation to such proposals, for the reasons explained by the Court of Appeal in Wilson.

17     Commissioner of Inland Revenue v Wilson [2017] NZCA 100 at [25].

18     Commissioner of Inland Revenue v Wilson [2017] NZCA 100 at [27].

[22]   Given that the judgment creditor has rejected all four proposals put forward by Mr Mason, this Court cannot be “satisfied” as to their terms. It is not therefore necessary, or appropriate, for the Court to consider the merits of those proposals.

Are the bankruptcy notices defective?

[23]   Mr Thwaite’s final argument was that the bankruptcy notices were defective and therefore invalid.

[24]   Section 29(1) of the Act provides that a bankruptcy notice must be in the prescribed form, which is Form B2, sch 1 of the High Court Rules 2016. Mr Thwaite accepted that the bankruptcy notices are both in the prescribed form. He submitted, however, that the prescribed form does not adequately set out all the matters that are required  to be included  by s 29, including  in particular the matters  referred to  at  ss 29(1)(b)(ii) and (iii).

[25]I set out s 29(1) again, for ease of reference:

29 Form of bankruptcy notice

(1)   The bankruptcy notice must—

(a)be in the prescribed form; and

(b)require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order,—

(i)to pay the amount owing, plus costs; or

(ii)to give security for the amount owing that satisfies the court or the creditor; or

(iii)to compromise the amount owing on terms that satisfy the court or the creditor.

[26]   The prescribed form addresses the matters referred to at ss 29(1)(b)(ii) and (iii) as follows:

[Y]ou must secure or enter into a new formal agreement with the judgment creditor or, alternatively, obtain the High Court’s approval of terms of payment…

[27]   Mr Thwaite submitted that this is an oversimplification that fails to make it clear to the judgment debtor that even if the creditor does not agree to a compromise of the amount owing, or an offer of security, it is still open to the debtor to satisfy the court of those requirements. He submitted that, in order to make this clear, judgment creditors (in all cases, not just this one) are required to add two further subparagraphs at the end of the prescribed form, mirroring the wording of ss 29(1)(b)(ii) and (iii).

[28]   For the reasons outlined previously, however, I have rejected the interpretation of ss 29(1)(b)(ii) and (iii) advanced by Mr Thwaite. I further note that the Court of Appeal in Wilson expressly considered the relevant wording in the prescribed form (which they quote in the passage set out at [15] above) and found support for their interpretation of s 29(1)(b)(iii) in that wording. In other words, in their view the wording of the prescribed form was consistent with s 29(1)(b)(iii), correctly interpreted. There is therefore no need for judgment creditors to add additional words to the prescribed form in order to comply with s 29. This is not surprising, given that the High Court Rules 2016 are part of the Senior Courts Act 2016 and accordingly have legislative force.19  It would be highly unusual for a person to be required to  add additional substantive provisions (as opposed to particulars of dates, amounts and so on) to a prescribed form in order for it to be valid. Such a requirement would tend to defeat the purpose of having a prescribed form.

[29]   For the reasons outlined, there is also no merit in this limb of Mr Thwaite’s argument.

Result

[30]The applications to set aside the bankruptcy notices are dismissed.

[31]   Costs are awarded to the judgment creditor in respect of both applications, on a 2B scale basis.

Katz J

19     Senior Courts Act 2016, s 147.