McDonald v Narayan HC Auckland CIV-2010-404-7325

[2011] NZHC 736

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-7325

IN THE MATTER OF     of the Insolvency Act 2006

AND IN THE MATTER OF Narayan Application to set aside bankruptcy notice

BETWEEN  JAMES GEORGE MCDONALD Judgment Creditor

ANDDEO NARAYAN Judgment Debtor

Hearing:         10 May 2011

Counsel:         M J Coogan and K Potter for Judgment Creditor

R Ferguson for Judgment Debtor

Judgment:      14 June 2011 at 2:30 PM

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Application to set aside bankruptcy)

This judgment was delivered by me on 14 June 2011 at 2.30 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

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

Solicitors:

Brannigans, PO Box 75 948, Manurewa, Auckland

Ferguson Law, PO Box 106 866, Auckland

MCDONALD V NARAYAN HC AK CIV-2010-404-7325 14 June 2011

Introduction

[1]      Mr  Narayan,  the  judgment  debtor,  applies  for  an  order  to  set  aside  the bankruptcy notice served on him 29 November 2010.   Mr McDonald opposes the application.

[2]      The sole point presently at issue is whether the court should exercise its inherent jurisdiction to adjourn the application pending determination of an application that Mr Narayan has filed in the District Court for an order setting aside the summary judgment on which the bankruptcy notice is founded. Counsel for both parties agree that the High Court has inherent jurisdiction to adjourn bankruptcy proceedings in appropriate cases to avoid a potential abuse of process, following Re:

Wise.[1]

[1] Re: Wise, ex parte Benecke HC Auckland B277-95 and B228-95, 21 June 1995.

[3]      Whether this is an appropriate case to adjourn depends on whether there is reason  to  believe  that  Mr  Narayan  has  or  may  have  a  reasonable  prospect  of obtaining an order in the District Court setting aside the foundation judgment.

[4]       Whether or not the foundation judgment will be set aside is a matter for the District Court to  determine under r 12.17.13  of the District Court Rules which invokes r 12.14 of the High Court Rules.

[5]      At the hearing, counsel for Mr McDonald also raised as a separate point that the application to set aside the bankruptcy notice was not served on the judgment creditor within the time allowed in s 17 of the Insolvency Act 2006.  It was served one day out of time. The point was not pursued. It was readily disposed of as the application  is  not  made  under  the Act.  Rather  it  relies  on  the  court’s  inherent jurisdiction.

Background

[6]      Mr and Mrs McDonald owned a property at 15 Rimu Road, Manurewa until

Mrs McDonald passed away on 28 July 2006. In order to release some equity in this

property, Mr and Mrs McDonald agreed to sell it to Mr Narayan for $150,000 with a

$15,000 deposit. Additional terms of the sale were that Mr and Mrs McDonald would both have life tenancies for $80 a week in rent, and that the property would not be subdivided during that time. The date for settlement was 26 August 2005.

[7]      On 18 August 2005, Mr Narayan paid $5000 of the deposit into Mr and Mrs McDonald’s joint bank account. Mr Narayan submits, and Mr McDonald now accepts, that on 10 September 2005 the parties agreed that the remaining $10,000 of the deposit would be paid by way of discharging Mr and Mrs McDonald’s debts to Farmers and American Express, with an additional cash payment of $2,000. Mr and Mrs McDonald owed American Express $2,250 and Farmers $6,700.

[8]      On 22 August 2005, Mr Narayan on-sold the property to Ziki Investments Ltd for $220,000. On 23 May 2006, Mr and Mrs McDonald became aware of this. In that agreement for sale and purchase were the following terms:

14.The purchaser acknowledges that the property is sold subject to a tenancy of the house to J G and DC McDonald who are tenants paying an agreed fixed rental of $80 per week until the death of either Mr McDonald or Mrs McDonald whoever dies first at which time the tenancy will come to an end.

15.        ...

(2)       The  tenant  shall  be  aware  that  the  purchaser  intends  to  start developing the rear section of the property within 30 days of the purchase. Furthermore, the tenants shall in no way hinder the purchaser with this development.

[9]      After Mrs McDonald died, Mr Yates, a representative of Ziki, visited Mr McDonald and told him that he would be required to pay full rent. Mr Yates also informed him that Ziki intended to subdivide the property. By letters dated 24 and 31

January 2007, Mr Yates tried to evict Mr McDonald from the property.

[10]     Mr McDonald enlisted the support of a television programme, “Fair Go”. After “Fair Go” became involved, Mr Yates told Mr McDonald he could stay in the property but that the subdivision was to continue. On 7 March 2007, construction workers began preparing the property for the construction of a second dwelling.

[11]     Mr McDonald lodged a claim against Ziki in the Tenancy Tribunal. On 27

April 2007, the Tribunal granted Mr McDonald a tenancy at $80 per week for 30 years or until he died. The subdivision was also to cease. This decision was upheld by the District Court and High Court on 10 December 2007 and 23 July 2008 respectively.

[12]     Mr McDonald commenced proceedings in the District Court on 1 June 2007 against Narayan for breach of contract. In James George McDonald v Deo Narayan, Judge D M Wilson QC ordered that Mr Narayan pay Mr McDonald $106,407.12 in respect of his claim for breach of contract, together with costs of $4,030.67.[2] When Mr Narayan did not pay the judgment debt, he was served with a bankruptcy notice on 29 November 2010.

The present application for adjournment

[2] James George McDonald v Deo Narayan District Court Auckland CIV 2007-004-00074, 22 June

2010.

[13]     On 13 December 2010, Mr Narayan filed this interlocutory application to have the bankruptcy notice set aside on the grounds that enforcing the judgment debt would be an abuse of process. Counsel for Mr Narayan submits that the appropriate course of action is to adjourn the application to set aside the bankruptcy notice until the application to set aside the foundation judgment can be heard in the District Court as he has an arguable defence to the latter. In doing so, he claims an abuse of process would otherwise result because:

a)  Mr Narayan has applied to the District Court under r 12.14 for a rehearing on the foundation judgment. He filed an application on 19 April 2011.

b) Mr Narayan’s incapacitating mental illness prevented him from attending the District Court hearing to defend himself. While Judge Wilson was not convinced by the medical practitioner’s first medical certificate, he filed an additional affidavit on 2 February 2011 to provide further evidence of Mr

Narayan’s ill health.

c)  Mr Narayan has reasonably arguable defences to the claims made by Mr McDonald in the District Court. Mr McDonald gave written authorisation for Mr Narayan to discharge some debts owed by Mr McDonald as a way of paying the outstanding deposit. Further, contrary to the District Court’s findings, Mr Narayan can produce further evidence from a graphologist that relevant sections of the agreement for sale and purchase with Ziki were forged.

d)  Points  b)  and  c)  satisfy  the  two-fold  test  under  s  12.14  and  the  court’s

overriding discretion.

[14]     Counsel  for Mr McDonald  submits  that  Mr Narayan  has  no  prospect  of succeeding in his application to set aside the foundation judgment.  Further that there are other factors that weigh against any adjournment.  He submits that:

(a)      Mr Narayan has not complied with the requirements of the bankruptcy notice and on the face of it arguably has committed act of bankruptcy;

(b)Mr Narayan was at all relevant times represented by counsel and had been put on notice by the District Court that there would be no further adjournments of the hearing of the judgment creditor’s claim;

(c)      Mr Narayan filed an appeal in this Court within time but the appeal was deemed abandoned because of his failure to provide for security for  costs  as  ordered.    The  appeal  did  not  raise  the  grounds  of complaint that are now said to give rise to a defence.

Discussion

[15]     In  assessing  whether Mr Narayan  should  be  granted the adjournment  he seeks, I must assess whether there is or may be a reasonable prospect in his obtaining an order setting aside the summary judgment in the District Court. In making this assessment, I must refrain from making any findings that may threaten the integrity

of District Court’s decision. Yet, I must have some regard to the nature of the District

Court’s discretion under r 12.14 which states:

12.14     Setting aside judgment

A judgment given against a party who does not appear at the hearing of an application for judgment under rule 12.2 or 12.3 may be set aside or varied by the court on any terms it thinks just if it appears to the court that there has been or may have been a miscarriage of justice.

[16]     In terms of r 12.14, this means Mr Narayan must not have attended the District Court hearing. He must also show that a miscarriage of justice may result if the foundation judgment is not set aside.

[17]     I am satisfied that Mr Narayan has advanced grounds that warrant allowing him an adjournment to pursue these arguments in the District Court. In reaching this conclusion, I am influenced by four factors:

(a)      Mr McDonald now acknowledges that he authorised Mr Narayan to repay his debts as a way of paying the outstanding deposit. This may question  the  section  of  the  foundation  judgment  that  found  Mr Narayan was bound to pay the $10,000 that was thought to be the outstanding deposit.

(b)Mr  Narayan’s  medical  practitioner  has  filed  a  further  affidavit clarifying matters raised in the medical certificate that was before the court in the District Court hearing. Accordingly, at first glance Mr Narayan may have had good reason for not attending the District Court  hearing  that  Judge  Wilson  did  not  anticipate.  This  is  also relevant to Mr Narayan’s forgery claim because it may explain why Mr Narayan did not pursue the third party responsible for the alleged forgery.

(c)      Mr Narayan says he has the evidence of a graphologist who supports his  claim  that  the  relevant  terms  of  the  agreement  for  sale  and purchase with Ziki were forged.

(d)      Mr  McDonald  has  not  pointed  to  any  real  injustice  that  would

eventuate from granting the adjournment.

Result

[18]     The correct forum to determine whether or not there is substance to the application for an order to set aside the foundation judgment is the District Court.  I am satisfied for the reasons I have given that there is sufficient basis for an adjournment in this Court to allow time for the District Court to make that assessment.

[19]     Having regard to the matters referred to in this judgment I now make the following orders:

(a)       The application to set aside the bankruptcy notice is adjourned to the

Miscellaneous Bankruptcy List at 11.45 am on 16 August 2011;

(b)Mr  Narayan  is  to  take  every  step  possible  to  ensure  that  his application to the District Court to set aside the judgment against him is heard and determined by that date;

(c)      An application for further adjournment will only be entertained if Mr Narayan satisfies the Court that he has fully complied with the above orders.

[20]     Costs are reserved.

Associate Judge Sargisson