Memelink v Grindlay
[2017] NZHC 1549
•6 July 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2017-485-000125 [2017] NZHC 1549
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of ROBYN GRINDLAY
BETWEEN
HARRY MEMELINK Judgment Creditor
AND
ROBYN GRINDLAY Judgment Debtor
Hearing: 3 July 2017 Appearances:
J D Haig for Judgment Debtor (applicant for halting order) Q S Haines for Judgment Creditor (respondent on this application)
Judgment:
6 July 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on application to halt adjudication application]
Introduction
[1] Robyn Grindlay owes Harry Memelink a debt of $176,786.67 (together with interest) (the debt) pursuant to a judgment of this Court dated 31 October 2016.1
[2] Mrs Grindlay promptly filed an appeal against the judgment. A bankruptcy notice was then issued by Mr Memelink in reliance on the debt. Mrs Grindlay failed to comply with it.
[3] Mr Memelink then applied for an order adjudicating Mrs Grindlay bankrupt.
1 Memelink v Grindlay [2016] NZHC 2589.
MEMELINK v GRINDLAY [2017] NZHC 1549 [6 July 2017]
[4] Mrs Grindlay in response applies for an order halting Mr Memelink’s
application. That is the matter now for determination.
[5] On the eve of this hearing, the Court of Appeal was apparently able to
allocate a hearing date of Mrs Grindlay’s appeal – it is to be heard on 24 July 2017.
[6] The Court of Appeal’s ability to hear the appeal within the next three weeks is the most significant of the factors which I must address in this judgment. Its significance is so fundamental to the exercise of my discretion and the just and equitable outcome of Mrs Grindlay’s application that I need only briefly identify other factors which are often taken into account, and accorded significant weight, but which do not assume great significance in the present circumstances.
Mr Memelink’s opposition – a procedural issue
[7] Shortly after Mrs Grindlay filed her halt application, Mr Memelink filed a detailed affidavit in opposition. The Court has no record of his filing a notice of opposition.
[8] The absence of a notice of opposition was not addressed by counsel in the synopses of submissions filed. I raised the omission with counsel at the hearing. Mr Haines was not able to identify in his possession a notice of opposition.
[9] I proceeded to hear the merits of the application and the opposition (which had been fully developed in the synopses of submissions) without prejudice to Mr Haig’s entitlement, if necessary, to supplement in writing his submissions in order to deal with the omission. In the event, by reason of the finding which I make on the merits, the lack of a notice of opposition does not call for further direction.
[10] I record that, had it been necessary for the Court to determine the issue, it is likely that I would have made an order under r 1.9 High Court Rules curing Mr Memelink’s defect in procedure.
The application for an order halting the adjudication application
The jurisdiction
[11] In her application, Mrs Grindlay invoked both ss 38 and 42 Insolvency Act
2006 (the Act).
[12] It is appropriate that the Court (as did counsel) address the application as one under s 42 of the Act, as the provisions in that section deal expressly with the appeal situation which occurs here.
[13] Section 42 of the Act provides:
42 Halt or refusal of application when judgment under appeal
(1) This section applies if the creditor’s application for adjudication
relies on one of the following acts of bankruptcy:
(a) the debtor failed to comply with a bankruptcy notice (see section 17):
(b) a judgment against the debtor for non-payment of trust money is not satisfied within 5 working days after the date of the judgment (see section 28).
(2) If the debtor has appealed against the judgment or order underlying the bankruptcy notice or the judgment for nonpayment of trust money, as the case may be, and the appeal is still to be decided, then the court may—
(a) halt the creditor’s application for adjudication; or
(b) refuse the application.
Applicable principles
[14] Counsel did not differ as to the applicable principles.
[15] The Court has a discretion which it is to exercise to achieve a just and equitable outcome.2
2 Re Wright, ex parte Health Distributors Ltd HC Hamilton, CIV-2010-419-121, 5 November
2010 at [10].
[16] The Court’s discretion is unfettered in the sense that the Act does not prescribe relevant factors (let alone criteria) or the weight to be accorded to them. As Lang J observed in Re Wright, ex parte Health Distributors Ltd, “context is everything”.3
[17] Counsel referred me to a number of authorities in which the Courts listed the factors of relevance in those cases in varying ways.4 Similarly, decisions of the Court of Appeal (which counsel did not cite) identify the need in this area for the consideration of the particular factors which assume most significance in the case before the Court.5
[18] There will generally be an appropriate discipline in the Court’s consideration of its discretion if the Court considers whether there are material circumstances under each of four general heads, namely:
(a) prejudice to the debtor if the application is refused; (b) prejudice to the creditor if the application is granted;
(c) the effect of a halt on third parties and on the public interest more broadly; and
(d) the overall balance of convenience.
[19] In my consideration, a list of the following questions asked under the above headings is likely to address the facts of most proceedings, but with the possibility
that other appropriate questions may arise.
3 Re Wright, ex parte Health Distributors Ltd, above n 2, at [13].
4 Re Wright, ex parte Health Distributors Ltd, above n 2; Re Small Business Accounting (NZ) Ltd, ex parte Ridge [2014] NZHC 2512; Walker v Castlereagh Properties Ltd [2015] NZHC 907, [2015] NZAR 944.
5 For instance, Petricevic v Bridgecorp Management Services Ltd (in rec) [2008] NZCA 286;
Property Ventures Investments Ltd v Commissioner of Inland Revenue [2010] NZCA 217, (2010)
24 NZTC 24,283.
[20] Debtor’s interest
(a) Is there a bona fide appeal?
(b) Does the appeal have a prospect of success? (c) Has the debtor diligently pursued the appeal? (d) Will the appeal be rendered nugatory?
[21] Creditor’s interest
(a) Will the creditor be prejudiced by a halt having regard to: (i) A delay in the date of eventual payment?
(ii)Irrecoverable costs and disbursements (whether through the appeal or otherwise)?
(iii) Erosion of the debtor’s remaining equity?
(iv) Delay in the Assignee’s commencement of investigation? [22] Third party and public interest
(a) Will other creditors’ interests be prejudiced or enhanced by a halt?
(b) Is there an aspect of public interest in favour of a particular outcome? [23] Balance of convenience
(a) In balancing the interests of the parties, what is the most just and equitable outcome?
The circumstances of this case
A bona fide appeal, diligently pursued?
[24] The evidence establishes that Mrs Grindlay is genuinely pursuing her appeal. The central, substantive ground of appeal (whether she was a party to a particular contract signed by her husband) constituted her ground of defence in the High Court and remains her focus.
[25] Her appeal was filed within time and has been diligently pursued. A delay which has occurred in the appeal process was caused by Mr Memelink’s decision to review the decision of the Deputy Registrar of the Court of Appeal to dispense with security. Once that impediment was cleared away, counsel were able to obtain a remarkably early fixture date (24 July 2017).
The prospects of a successful appeal?
[26] On the limited evidence before the Court on this application, I am able to determine neither that Mrs Grindlay’s appeal has a strong prospect of success nor that it is extremely weak. For the purposes of this application, I conclude that it falls somewhere between. In so treating the prospects of the appeal, I recognise that Mr Memelink would have this Court attach significant weight to the observation of Cooper J (in dismissing the security review) that “the appeal does not appear to have
strong prospects of success”.6
[27] My assessment must be on the evidence filed on this application.
[28] In reaching his decision that Mrs Grindlay was a party to the contract which she had not signed, Collins J had regard to four identified matters.7 The first two points involve the contract and a deed of lease, both signed by Mr Grindlay and on which Mrs Grindlay’s name was entered as a party (but not above her signature or initials). The fourth point relates to letters sent to Mr Memelink in the names of both Mr and Mrs Grindlay at dates some four to seven months after the contract was
entered into. The third point identified by Collins J is that Mrs Grindlay “signed
6 Grindlay v Memelink [2017] NZCA 243 at [11].
cheques in part payment for the shares under the contract”, with the cheques drawn from a joint account. One of Mrs Grindlay’s points on appeal (not contradicted in this proceeding) is that Collins J incorrectly found that her signature appeared on the cheques in question.
[29] There is sufficient evidence in these circumstances to require the recognition of at least a reasonable possibility that the appeal grounds will be found to have merit.
A nugatory appeal?
[30] I respectfully adopt (with names changed) Lang J’s analysis of the potential
prejudice to the debtor in Re Wright:8
[Mrs Grindlay] contends that an order of adjudication would effectively render [her] appeal nugatory. I agree that the appeal would be at risk in the event that an order of adjudication is made. That follows from the likelihood that the Official Assignee will not permit [Mrs Grindlay] to continue with the appeal if [she] is adjudicated bankrupt. That is not, however, a certainty. [Mrs Grindlay] would be entitled to ask the Official Assignee to allow [her] to pursue the appeal because it underlies the order of adjudication.
[31] In Re Wright, Lang J went on to recognise that the likelihood of prejudice was not determinative of the halt application but nonetheless represented a factor favouring the ordering of a halt.9
[32] Precisely the same observation applies in this case.
Delay to Mr Memelink through the appeal process?
[33] It happens that (through no delay of Mrs Grindlay or her counsel) the date at which the Court is considering this application falls three weeks before the now- allocated hearing of the appeal. The notice of fixture from the Court of Appeal records that two hours have been allocated for the appeal hearing. While Mr Haines
expressed the concern that there might not be an appeal outcome until late-2017, it is
8 Re Wright, ex parte Health Distributors Ltd, above n 2, at [16].
likely that there will be a relatively prompt appeal judgment in keeping with the
Court of Appeal’s usual standard in relation to short appeal hearings.
[34] It is this feature of this case which strongly indicates that justice and equity are likely to be served by awaiting the outcome of the appeal. It weighs strongly in favour of a halt.
Continuing irrecoverable costs?
[35] By reason of the decisions in the Court of Appeal whereby Mrs Grindlay is not required to provide security for the costs or disbursements of the appeal, Mr Memelink faces costs and disbursements which will be unrecoverable should Mrs Grindlay’s appeal fail.
[36] I recognise that as a factor against a halt order.
Erosion of Mrs Grindlay’s equity?
[37] Mrs Grindlay has not provided definitive evidence as to her equity. Her principal asset is a half share in her home. The other half share belonged to her husband, now bankrupt. The property is heavily mortgaged. In the absence of valuation evidence, it is impossible to determine whether there remains significant equity in Mrs Grindlay’s half share. On her unverified statement to the Court of Appeal she might have some equity (before any costs of realisation are accounted for).
[38] It is a factor against the granting of a halt order that such equity as Mrs Grindlay might have today may be eroded or eliminated by her continuing costs and expenses (including of litigation) and by any unforeseen shortfall in her interest payments. (She has deposed that at present she is able to pay her “usual debts and expenses” other than the amount of the damages in the judgment.)
Prejudice to third parties?
[39] The evidence discloses that Mrs Grindlay has two secured creditors, being the mortgagee of the house property and a finance company in relation to a motor
vehicle. I do not view their interests as significantly affected by the decision to be made here. Each has its security for the sum advanced.
The public interest?
[40] Counsel did not advert to any matters of public interest which should affect the outcome.
Novelty and importance of issues involved?
[41] The issues on appeal do not appear to raise matters of significant novelty or importance. The appeal is likely to involve the application of well-settled law to the facts.
Other considerations – Mrs Grindlay’s impecuniosity
[42] Mrs Grindlay accepted at the time of filing of this application that she is impecunious in the sense that she could not satisfy any significant part of the judgment as it stands.
[43] Counsel differed as to the relevance of this circumstance to the present application. Now that there is to be a hearing of the appeal within three weeks, Mrs Grindlay’s conceded impecuniosity (in the event the judgment stands) weighs in favour of awaiting the outcome of the appeal through the grant of a halt order.
Other factors – Mr Memelink’s charging order
[44] After obtaining judgment against Mrs Grindlay, Mr Memelink exercised his entitlement to obtain a charging order under pt 17 High Court Rules and to register it against the title to the Grindlays’ property.
[45] Mr Haig submitted that the Court should attach some weight to that degree of protection which Mr Memelink now has and to the fact that Mrs Grindlay would not be able to raise further finance (should equity exist) to at least provide part satisfaction of the judgment. This submission was made partly in response to evidence given by Mr Memelink as to past occasions when he has, pending appeals,
deposited funds to cover adverse judgments. Mr Memelink’s suggestion was that
Mrs Grindlay has not demonstrated similar good faith by lodging funds.
[46] I do not attribute any lack of good faith to Mrs Grindlay in the circumstances.
Balance of convenience
[47] With the appeal hearing now to take place within three weeks, the only just and equitable outcome in this case is that this Court halts the adjudication application for the time being, but on conditions which ensure the continued diligent prosecution of the appeal. The factors present which would operate to the prejudice of Mr Memelink do not in the circumstances of a relatively short delay have the significance that they have had in earlier cases where appeal rights have been pursued less than diligently and any appeal hearing remained distant.
Orders
[48] I order:
(a) The creditor’s application for adjudication is halted until further order
of the Court.
(b) The halt is conditional upon the debtor both:
(i)diligently pursuing her appeal including by representation at the allocated appeal hearing; and
(ii)ensuring that her usual debts and expenses are duly met from income, pending the outcome of her appeal.
(c) Leave is reserved to the creditor to apply on three days’ notice for cancellation of the halt in the event either or both conditions at [48](b) are not met.
(d) The costs and disbursements of the halt application are reserved.
Associate Judge Osborne
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt
Counsel: J D Haig, Barrister, Wellington
QH Law, Levin
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