McCormack v Stills
[2024] NZHC 1395
•30 May 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-661
[2024] NZHC 1395
IN THE MATTER of the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of ANDREW EDWARD STILLS
BETWEEN
ROBERT JAMES LOUIS McCORMACK and ELIZABETH ROBYN McCORMACK
Judgment Creditors
AND
ANDREW EDWARD STILLS
Judgment Debtor
Hearing: 24 May 2024 Counsel:
H A Evans and S Jung for Judgment Creditors
Judgment Debtor appears in person with C Stokes (McKenzie Friend)
Judgment:
30 May 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 30 May 2024 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
McCORMACK v STILLS [2024] NZHC 1395 [30 May 2024]
[1] Mr Stills brought an application to sustain a caveat over a property at Little Akaloa which is owned by the judgment creditors (the McCormacks). I dismissed his application in a judgment of 17 August 2023.1 In a further judgment of 14 November 2023 I awarded the McCormacks costs.2
[2] The McCormacks have served a bankruptcy notice upon Mr Stills to enforce their costs judgment. Mr Stills applies to set aside the bankruptcy notice.
[3] While the McCormacks rely on several grounds to oppose Mr Stills’ application, the only ground I need to consider is whether Mr Stills did not comply with the requirements of the bankruptcy notice because his application was not accompanied by a supporting affidavit and is therefore a nullity.
Background
[4] On 14 November 2023 the McCormacks obtained judgment against Mr Stills for costs in the amount of $19,435.60.3
[5] The McCormacks applied to the High Court for a bankruptcy notice to be issued in respect of the judgment. The bankruptcy notice was served upon Mr Stills on 7 December 2023. Mr Stills had until 21 December 2023 to comply with the bankruptcy notice.4
[6] On 21 December 2023 at 4.55 pm Mr Stills emailed to the Court and counsel for the McCormacks an application to set aside the bankruptcy notice. The application was not accompanied by an affidavit.
[7] Mr Stills sought to set aside the bankruptcy notice on the ground that he has a counterclaim, set-off or cross-demand against the McCormacks which exceeds the amount claimed by them under the judgment and which he was not able to put forward in the proceeding in which the McCormacks’ judgment was obtained. Mr Stills says
1 Stills v McCormack [2023] NZHC 2224.
2 Stills v McCormack [2023] NZHC 3200.
3 At [43].
4 Insolvency Act 2006, and High Court Rules 2016, sch 1, form B 2.
the counterclaim, set-off or cross-demand is presently the subject of District Court proceedings between himself and the McCormacks.
[8] At 9.01 pm on 21 December 2023 Mr Stills emailed to the Court and counsel for the McCormacks a copy of a statement of defence which he had filed in the District Court proceedings between himself and the McCormacks.5
[9] At 2.09 pm on 23 December 2023 (a Saturday and during the High Court’s Christmas closedown period) Mr Stills sent by email to the Court and counsel an amended notice of application and an affidavit dated 1 November 2022 that he had filed in the same District Court proceedings between himself and the McCormacks which he described as “my affidavit previously referred to in my 21 December application”.
[10]The Registry sent the following email to Mr Stills on 4 January 2024:6
Good morning Janie7 and Andrew,
We confirm receipt of the filing fee of $200.00 for the Application to Set Aside Bankruptcy Notice via EFT-POS – please find attached the transaction receipt for your information, no further payment is required.
Unfortunately a supporting Affidavit was not filed along with the Application to Set Aside Bankruptcy Notice which is a requirement as per Bankruptcy Notice (the copy of Affidavit dated 1 November 2022 is not current therefore this is not accepted).
As the requirements have not been met and the documents required were not filed by the due date 21 December 2023, for this application to proceed you will be required to file a Memorandum seeking leave to file out of time as soon as possible. This will be placed before the Judge for their consideration.
The Registry will await your supporting Affidavit and Memorandum to be filed at your earliest convenience.
Thank you.
5 McCormack v Stills DC Christchurch CIV-2022-009-1728. As the statement of defence was sent outside registry hours, under r 5.1B(1)(c)(i) of the High Court Rules the statement of defence was not “filed” until the following day.
6 For reasons that will become clear, the advice from the Registry was incorrect as Mr Stills could not obtain an extension of time to file an affidavit in support of his application, but this is immaterial as he never sought an extension of time.
7 This is Mr Stills’ partner as he used her email address for correspondence to the Court.
[11] On 8 January 2024 Mr Stills filed a memorandum with the Court challenging the Registry officer’s statement that the affidavit of 1 November 2022 was not current.
[12] On 14 February 2024 Mr Stills filed a further memorandum in anticipation of the first call of his application before the Court on 15 February 2024 rejecting the suggestion that his application was not properly made. He said the High Court must “self-evidently” be satisfied that he has a set-off or cross-demand against the McCormacks. In support of that he referred to an interlocutory judgment issued in the caveat proceeding which he said acknowledged his set-off or cross-demand.8
[13] The McCormacks filed a notice of opposition to Mr Stills’ application to set aside the bankruptcy notice. The grounds advanced can be summarised as:
(a)the application is a nullity because it was not accompanied by a supporting affidavit;
(b)the application is defective because it did not comply with Form G 31 of the High Court Rules; and
(c)Mr Stills does not have a genuine or triable counterclaim, set-off or cross-demand.
[14] Finally, for completeness I should note that when Mr Stills’ application was heard before me on 24 May 2023 it was agreed that he could file submissions in reply in writing. The submissions are almost entirely an attack on the honesty of the McCormacks’ counsel. In that respect they are not relevant to the issue I have to decide, and I do not refer to them further.
The law
[15]Section 17 of the Insolvency Act 2006 relevantly provides:
17 Failure to comply with bankruptcy notice
(1)A debtor commits an act of bankruptcy if—
8 Stills v McCormack [2023] NZHC 703.
...
(d)the debtor has not, within the time limit specified in subsection (4),—
(i)complied with the requirements of the notice; or
(ii)satisfied the court that he or she has a cross claim against the creditor.
(2)The form that the bankruptcy notice must take is set out in section 29.
…
(4)The time limit referred to in subsection (1)(d) is,—
(a)if the debtor is served with the bankruptcy notice in New Zealand, 10 working days after service; or
...
[16] Section 29(1)(a) of the Insolvency Act requires a bankruptcy notice to be in the prescribed form. The prescribed form is Form B 2 of the High Court Rules, which notice is required to state as follows:
1Within [10 working days, or, if the notice is served outside New Zealand, the period specified in the order for service] after you are served with this notice (excluding the day of service)—
(a)you must pay to the judgment creditor, [full name, address],
$[amount], either in person or at the address for service of the judgment creditor (or the solicitor for the judgment creditor). This amount is the amount the judgment creditor claims is due (or remains unpaid) on a final judgment or final order, on which execution has not been stayed, that the judgment creditor obtained against you in the [name of court] on [date]; or
(b)you 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; or
(c)you must satisfy the High Court that you have a counterclaim, set-off, or cross-demand against the judgment creditor—
(i)that equals or exceeds the amount claimed by the judgment creditor; and
(ii)that you could not put forward in the action or proceeding in which the judgment or order was obtained.
2The judgment creditor also claims costs against you of $[amount], which includes—
(a)a fee of $[amount] for filing this notice; and
(b)a fee of $150 for serving this notice.
3A certified copy of the judgment or order on which this bankruptcy notice is based is attached.
Date:
(Deputy Registrar)
Notes
Please carefully read the following information.
Consequences of not complying with notice
If you do not comply with paragraph 1, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.
Procedure for counterclaiming, etc
If you consider you have a counterclaim, set-off, or cross-demand against the judgment creditor that comes within paragraph 1(c), or you wish to seek the court’s approval of terms of payment, you must, within 10 working days from the date of receiving this notice, apply to the High Court. Your application must be supported by affidavit.
You must, within the same time, also serve a copy of the application and supporting affidavit on the judgment creditor.
Costs
If you do not dispute the claim for costs, you must, within 10 working days, pay the costs claimed to the judgment creditor, either in person or at the address for service of the judgment creditor (or the solicitor for the judgment creditor), unless—
(a)the amount claimed has been secured or has become the subject of a new formal agreement to the judgment creditor’s satisfaction or to the satisfaction of the High Court; or
(b)the amount of any counterclaim, set-off, or cross-demand that you advance is sufficient to cover the costs claimed as well as the amount specified in paragraph 1(a).
If you dispute the claim for costs, you must, within 10 working days, apply to the High Court to fix costs.
If you do not pay the costs claimed or dispute the claim for costs, you will commit an act of bankruptcy for which you may be adjudicated bankrupt.
This notice is issued by [name and address of judgment creditor] in person by [full name and address for service of solicitor for judgment creditor]*.
*Select one.
Note: The amount claimed for costs in paragraph 2 must be determined as if the proceeding were a category 2 proceeding specified in Schedule 2 of the High Court Rules and the time allocation were the time allocation for item 44 and band B specified in Schedule 3 of the High Court Rules.
[17] Applications to set aside bankruptcy notices must follow the rules that apply to interlocutory applications.9
[18] It has consistently been held that an application to set aside a bankruptcy notice and the affidavit in support of it must be filed and served within 10 working days of service of the bankruptcy notice.10 An application that is filed out of time is a nullity and late service of an application and/or the affidavit in support cannot cure an act of bankruptcy that has already occurred.11
[19] The case most often cited as authority for this is Re Memelink, ex parte SANCO (NZ) Ltd.12 There a bankruptcy notice was served on the judgment debtor on 17 December 2008. It was not until 23 January 2009 that the judgment debtor filed an application to set aside the bankruptcy notice (with no affidavit in support) which was served on the judgment creditor on 28 January 2009. An affidavit in support was sworn by the judgment debtor and filed on 27 February 2009 but was not served. The judgment creditor objected to the application to set aside the bankruptcy notice because although arguably the application was filed in time it was effectively a nullity as it was not served within the required period and was without a supporting affidavit.
[20] Associate Judge Gendall referred to several authorities and found the application had to be dismissed.13 He said:
9 High Court Rules, rr 24.4 and 24.10; and Re Memelink, ex parte SANCO (NZ) Ltd HC Wellington CIV-2008-485-2691, 10 March 2009 at [9].
10 High Court Rules, Form B 2.
11 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [24.10.01].
12 Re Memelink ex parte SANCO (NZ) Ltd, above n 9.
13 Citing Re Scott, ex parte ANZ Banking Group (NZ) Ltd HC Rotorua B113/89, 15 September 1989; Dillon v Blueprint Developments Ltd HC Auckland B2164/89, 27 March 1990; and Alexander v S H Lock (NZ) Ltd (1998) 12 PRNZ 249.
[13] In my view, from the wording of the Insolvency Act 2006 and the provisions in the required Form B2 for bankruptcy notices, it is clear that a judgment debtor has only 10 working days from the date of service upon him of the bankruptcy notice to apply to this Court to set it aside and this application must be supported by affidavit. In addition, within this same 10 day working period the judgment debtor is required also to serve “a copy of the application and supporting affidavit on the judgment creditor”.
[14] This has not happened in the present case. Even if the bare application itself was filed within the ten working day period after service of the bankruptcy notice it was not until one month later that the judgment debtor’s supporting affidavit was filed. Further, neither the application itself nor the affidavit in support were served upon the judgment creditor within that 10 working day period.
[15] That said, there is no basis in law for me to deal with the judgment debtor’s application to set-aside the bankruptcy notice. The application must be dismissed. An order to this effect is to follow.
[21] This approach has been followed many times in this Court. A few examples will suffice to demonstrate the point. In Re Westpac New Zealand Ltd (1763882), ex parte Fung, the judgment debtor’s application was filed with no supporting affidavit.14 The Judge referred to this as a “mandatory requirement” specified in the bankruptcy notice in the High Court Rules and applied Re Memelink, ex parte SANCO (NZ) Ltd.15 Associate Judge Faire stated:
[5] Where the time limit is not complied with an act of bankruptcy occurs and cannot later be undone by way of extending time. That is because an act of bankruptcy occurs at the moment there has been non-compliance: ...
[22] In ANZ Bank New Zealand Ltd v Edwards, the application to set aside the bankruptcy notice was filed on time but not served within the 10 day period.16 The result was that the judgment debtor had committed an act of bankruptcy. The Court applied Re Memelink, ex parte SANCO (NZ) Ltd and held that the Court had no ability to extend time for bringing and serving the application because the Court could not “undo an event which has occurred, namely the act of bankruptcy”.17
[23] Clayton v Clayton is a case upon which Mr Stills relies, but as I shall come to it does not support his application.18 There the Family Court awarded costs which
14 Re Westpac New Zealand Ltd (1763882), ex parte Fung [2012] NZHC 2367.
15 At [3], referring to High Court Rules, r 7.20.
16 ANZ Bank New Zealand Ltd v Edwards [2013] NZHC 2756.
17 At [8].
18 Clayton v Clayton [2014] NZHC 2275.
were not paid. The judgment creditor served a bankruptcy notice on 6 May 2014, and on 19 May 2014 the judgment debtor filed an application to set aside the bankruptcy notice without an affidavit. An affidavit was filed on 12 June 2014 but neither the application nor the later affidavit was served on the solicitors acting for the judgment creditor.
[24] Associate Judge Matthews found there was no valid application to set aside the bankruptcy notice as no affidavit setting out factual material from which the Court might be asked to find that the judgment debtor had a crossclaim was filed within the statutory 10 day period. He also found that the application had not been served on the solicitors who issued the notice. It therefore followed that “at no time has there been a valid application to set aside the bankruptcy notice before the Court”.19
[25] In Commissioner of Inland Revenue, ex parte Bruce the judgment debtor served an application to set aside a bankruptcy notice within time but did not file a supporting affidavit.20 There the Associate Judge found that the failure to serve an affidavit negated the application and meant that the judgment debtor had committed an act of bankruptcy by failing to take the steps required by s 17 of the Insolvency Act. The application was therefore dismissed.
[26] In Re Lockwood, ex parte Greenbaum the judgment debtor filed an application to set aside a bankruptcy notice with two supporting affidavits out of time.21 The Court rejected an argument that it could exercise its inherent discretion to set aside the bankruptcy notice even if the 10 working day period prescribed had expired.22
[27] In Re Murray, ex parte West Coast Holdings Ltd the judgment debtor failed to serve an application to set aside a bankruptcy notice with a supporting affidavit within the prescribed period.23 It was held the Court had no ability to extend the 10 working day period within which an applicant must not only serve the application but also a supporting affidavit. The Court rejected a submission that the substance of the
19 At [35].
20 Commissioner of Inland Revenue, ex parte Bruce [2012] NZHC 1913.
21 Re Lockwood, ex parte Greenbaum [2020] NZHC 18.
22 At [39].
23 Re Murray, ex parte West Coast Holdings Ltd [2019] NZHC 2913.
affidavit later sworn by the judgment debtor had been made available to the judgment creditor during the 10 working day time limit. Associate Judge Smith held that the requirement for an affidavit to be served with the application was clear and the document that had been provided to the judgment creditor was not an affidavit.24
My analysis of this case
[28] Mr Stills argues that he complied with the requirements of the bankruptcy notice in full and on time. I do not accept that he did so, and it is necessary for me to address the several matters he has raised in support of his submission.
[29] I understand Mr Stills’ first argument is that it is sufficient if his affidavit of 1 November 2022 was referred to in his notice of application. While the first application filed by Mr Stills refers to proceedings in the District Court and High Court and to affidavits filed in those other proceedings, there is no specific mention of the affidavit of 1 November 2022. It is only his amended application sent to the Court on 23 December 2023 (and after the expiry of the 10 working day time limit) that does so. In any event, it is not sufficient to only refer to an affidavit, particularly not one filed in other proceedings and in a different court. The bankruptcy notice clearly states “You must, within the same time, also serve a copy of the application and supporting affidavit on the judgment creditor”.
[30] Mr Stills then argues that his affidavit of 1 November 2022 was in fact filed ahead of the time limit because it was filed in the District Court on or around the date it was sworn and was also filed in the caveat proceeding and “self evidently” supports his application. I do not accept this submission. An application to set aside a bankruptcy notice can only be made to this Court. The 1 November 2022 affidavit is not an affidavit in support of Mr Stills’ application to set aside the bankruptcy notice. It was prepared and filed in the District Court for a completely different purpose. The affidavit was also not filed in the caveat proceeding. It was attached as an exhibit to an affidavit of Mr Stills filed in that proceeding on 21 November 2022. Even if I was
24 At [8].
to regard the affidavit as having been filed in the caveat proceeding (and I do not), it cannot be relied upon in this proceeding.25
[31] The next argument is that there was no need for Mr Stills to file and serve an affidavit at all. As I understand it, this is because the bankruptcy notice only requires him to do so “[i]f you consider you have a counterclaim, set-off or cross-demand against the judgment creditor”.26 Mr Stills argues he does not “consider” that he has a set-off or cross-demand, he knows “as fact” that he does, and it is on foot in the District Court. He submits that I was satisfied of the existence of such claims because they are referred to in my decisions in the caveat proceeding,27 and that his claims against the McCormacks must be treated as admitted because they did not file a reply to his allegations as required by the District Court Rules. I do not accept these submissions.
[32] That Mr Stills has made claims against the McCormacks in the District Court does not release him from his obligation to file an affidavit in support of his application, nor does it mean the Court will set aside the bankruptcy notice. The Court must be satisfied that he has a genuine triable claim that equals or exceeds the amount due to the McCormacks.28 That must be established by affidavit evidence filed in support of the application and there is no such affidavit.
[33] Nothing I have said in my earlier judgments in the caveat proceeding suggests that I was satisfied that Mr Stills has a genuine triable claim against the McCormacks. I have not formed any view on that matter. It was not necessary for me arrive at a view in the caveat proceeding or on this application. Insofar as Mr Stills says his claims must be taken to be admitted under the District Court Rules, there is no evidence about that before me.
25 High Court Rules, r 7.32.
26 High Court Rules, Form B 2.
27 Stills v McCormack, above n 8, at [4], [16], [56] and [57].
28 Re Sharrock, ex parte Kipping [2018] NZHC 2210 at [8].
[34] Mr Stills contends that his view that he did not need to file an affidavit is supported by the judgment of Associate Judge Matthews in Clayton v Clayton.29 It is not. Mr Stills refers to the following paragraph of the judgment:
[15] It has become common terminology to describe the means of following the procedure in s 17(1)(d)(ii), satisfying the Court that a debtor has a cross claim against a creditor, as an application to set aside a bankruptcy notice. In fact, this is a misnomer, despite the phrase having made its way into r 24.10 of the High Court Rules. If the position described in s 17(1)(d)(ii) is established, an act of bankruptcy is not committed. From a debtor’s perspective, the crucial point is to establish the factual position provided for.
[35] It is not clear what point the Judge was intending to make beyond the fact that a debtor must establish he or she has a cross-demand or counterclaim against the creditor. The Judge noted that a debtor must establish this by affidavit evidence when he said:
[16] The learned authors of Heath & Whale on Insolvency discuss the options facing a debtor. They note that a debtor may oppose a bankruptcy notice by affidavit, alleging a cross claim equalling or exceeding the amount of the judgment debt on which the bankruptcy notice is founded and which otherwise meets the terms of s 17(7). This is the entire ambit of challenge. If this is not established a bankruptcy notice properly issued will have the effect set out in s 17 — the debtor will have committed an act of bankruptcy.
[17] Although the accepted course for placing evidence on this point before the Court is by way of an application to set aside a bankruptcy notice, the factual position described in s 17(1)(d)(ii) will be derived from the evidence. Provision of that evidence within the time provided (10 working days after service — s 17(4)) is crucial to the successful establishment of the position a judgment debtor seeks to expound.
(footnote omitted)
[36] Mr Stills also relied upon the Court of Appeal judgment in Sharma v ANZ Banking Croup (New Zealand) Ltd, and in particular the headnote to the judgment which reads:30
If the [debtor] satisfies the Court of the conditions in s 19(1)(d) [now s 17(1)(d)] of the Insolvency Act 1967 [now the Insolvency Act 2006] then there is no act of bankruptcy and no discretion to allow the bankruptcy notice to stand.
29 Clayton v Clayton, above n 18.
30 Sharma v ANZ Banking Croup (New Zealand) Ltd (1992) 6 PRNZ 386.
[37] Mr Stills’ reliance upon Sharma is based on the erroneous view that I have recognised that he has valid claims against the McCormacks in earlier judgments. The decision in Sharma is helpful, however, as emphasising the need for a party in the position of Mr Stills to provide evidence of such claims.31 The mere assertion of the existence of claims will not suffice.
[38] Mr Stills also argues that Re Memelink, ex parte SANCO (NZ) Ltd is distinguishable on its facts, including because there the judgment debtor did not have a set-off or cross-demand on foot in court proceedings.32 Any differences in the facts of Re Memelink are not material. The principle that an application to set aside a bankruptcy notice must be accompanied by a supporting affidavit applies equally to this case.
[39] Mr Stills did not file and serve both his application to set aside the bankruptcy notice and affidavit in support within 10 working days of service of the bankruptcy notice upon him. He has, in fact, never filed and served an affidavit in support of his application. He did not comply with the requirements of the bankruptcy notice and has committed an act of bankruptcy. It follows that his application must be dismissed.
[40] However, that is not the end of the matter between these parties. The commentary to McGechan on Procedure is relevant here, which states:33
All is not lost for debtors who fail to file and serve an application to set aside a bankruptcy notice on time – they may still be able to raise their arguments when the Court comes to consider an application for adjudication: ...
[41] The McCormacks have filed a creditors application to adjudicate Mr Stills bankrupt which is scheduled to be called before the Court on 13 June 2024. It remains open to Mr Stills to oppose that application on any of the grounds set out in s 37 of the Insolvency Act, but he must do so in the manner required by the High Court Rules.
[42] I also understand that the McCormacks have applied for summary judgment in the District Court proceeding and that is to be heard in July 2024. Some consideration
31 At 389.
32 Re Memelink, ex parte SANCO (NZ) Ltd, above n 12.
33 Jessica Gorman and others McGechan on Procedure, above n 11, at [HR24.10.01].
should be given to whether it would be appropriate for the McCormacks’ creditor’s application to be adjourned until after that hearing, which may potentially save all parties costs.
Result
[43]Mr Stills’ application to set aside the bankruptcy notice is dismissed.
[44] The McCormacks have been successful in opposing Mr Stills’ application and in the ordinary course would be entitled to costs, but I have heard no submissions on costs. I reserve costs, and if the parties cannot agree on how costs should be dealt with, they may file memoranda within 28 days, and I will determine the matter on the papers.
O G Paulsen Associate Judge
Solicitors:
Young Hunter, Christchurch Copy to: Mr Stills
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