Ministry of Justice v McGuire

[2019] NZHC 1078

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2018-454-66

[2019] NZHC 1078

BETWEEN

THE MINISTRY OF JUSTICE

Judgment Creditor

AND

JEREMY JAMES MCGUIRE

Judgment Debtor

Hearing:	29 April 2019
Appearances:	M L Clarke-Parker for Judgment Creditor Judgment Debtor in Person
Judgment:	16 May 2019

JUDGMENT OF CLARK J

Introduction

[1]                 The  judgment  debtor,  Mr McGuire  was   given  a  final  opportunity  on   13 December 2018 to settle his indebtedness to the judgment creditor, the Ministry of Justice. Despite paying most of the debt he owed as at March 2019 he has outstanding debts and the Ministry seeks final determination  of  its  application  to  adjudicate Mr McGuire bankrupt.

Background

[2]                 On 19 July 2018 the Ministry of Justice filed a bankruptcy notice in  the  High Court at Palmerston North. Because Mr McGuire did not respond within the statutory timeframe he was judged to have committed an act of bankruptcy entitling the Ministry to commence bankruptcy proceedings.

THE MINISTRY OF JUSTICE v MCGUIRE [2019] NZHC 1078 [16 May 2019]

[3]                 Accordingly, on 30 October 2018 the Ministry of Justice filed an application to adjudicate Mr McGuire bankrupt. The  debts  arose  from  costs  orders  against Mr McGuire in proceedings in the High Court, Court of Appeal and Supreme Court. With interest, the debt as at 30 October 2018 was said to total $31,175.74.

[4]                 The matter was called for the first time in the Palmerston North Commercial List on 13 December 2018. The Ministry sought to proceed. Mr McGuire resisted. Having  heard  from  counsel  for  the  Ministry,   and   from   Mr McGuire, Associate Judge Johnston declined to make an order adjudicating Mr McGuire bankrupt.1 Instead, the proceeding was adjourned.

[5]                 In his reasons for judgment the Associate Judge observed prima facie, the Ministry was entitled to proceed. Mr McGuire’s first argument had been that, by paying the judgment debt identified in the bankruptcy notice as totalling $7,483, his act of bankruptcy was thereby purged and the Ministry was disentitled from proceeding. In the Associate Judge’s view that contention was plainly wrong as an act of bankruptcy was constituted by Mr McGuire failing to answer the bankruptcy notice served on him.2 When Mr McGuire failed to comply with the bankruptcy notice the Ministry commenced its application for bankruptcy seeking to recover debts exceeding the original debt notified in the bankruptcy notice. The fact the amount referred to in the bankruptcy notice had been paid shortly before the hearing was “neither here nor there”.

[6]                 Mr McGuire’s second argument was also rejected. Mr McGuire had argued that one component of the litigation in which the parties had been involved was resolved by the Supreme Court in a judgment delivered shortly before the hearing before the Associate Judge and there had been little time to consider the impact of the judgment. In rejecting Mr McGuire’s argument, the Associate Judge observed the “Ministry’s claim against Mr McGuire is made up of a number of different debts, many of which have been outstanding for a considerable period of time”.3

1      Ministry of Justice v McGuire [2018] NZHC 3322.

2      At [4]–[5].

3 At [6].

[7]                 Notwithstanding the “strong submission” made by counsel on behalf of the Ministry the Associate Judge concluded the proper course was to adjourn the proceeding to the next list on 14 March 2019 to give Mr McGuire a final opportunity to settle his indebtedness to the Ministry.

[8]                 On 8 March 2019 the Ministry’s Principal Solicitor, Roger Howard, filed an affidavit deposing to the debt Mr McGuire owed to the Ministry. Taking into account Mr McGuire’s part payment of $7,483.00 on 12 December 2018 and with an adjustment to an error in the Ministry’s application, the debt totalled $17,102.00.

[9]                 On 8 March 2019 Mr McGuire paid $16,998.88 into the trust account of the Ministry’s solicitors,  Meredith  Connell.  By  email  to  Mr  McGuire  on  Monday 11 March 2019, Meredith Connell confirmed receipt of $16,998.88 into its trust account the previous Friday, sought confirmation from Mr McGuire that the payment was made in relation to his outstanding debts to the Ministry and advised that following Mr McGuire’s payment of $16,998.88, $103.12 was outstanding. The debt owing as at Friday 8 March 2019 was $17,102.00. Mr McGuire was asked to pay the outstanding $103.12 as soon as possible. The email concluded with reservation of the Ministry’s position in relation to costs associated with the application for adjudication, including appearance at the call on 13 December 2018.

[10]              The matter was called in the Palmerston North List on 14 March 2019. Associate Judge Johnston observed: “[i]ncredibly, there remain issues between the parties that the Court is being asked to resolve”.4 For reasons which are not relevant to this judgment the Associate Judge recused himself. Any further issues for resolution were to be dealt with by another Judge. The parties were directed to file memoranda advising whether or not all outstanding matters had been resolved and, if not, what aspects of the case required resolution. Counsel for the Ministry agreed with the Associate Judge that the matter should be dealt with on the papers but accepted     Mr McGuire’s preference for a hearing.

4      Ministry of Justice v McGuire HC Palmerston North CIV-2018-454-66, 14 March 2019 at [3].

[11]              On 29 March 2019, Churchman J issued a minute setting down for argument in the next Judge’s Chamber List the issue as to whether or not Mr McGuire had paid the full debt owing to the Ministry. The minute also recorded:

(a)Mr McGuire’s insistence on a hearing for the purpose of determining the outstanding issue of the alleged debt of $103.12;

(b)Meredith Connell’s notification to Mr McGuire of claimed costs and disbursements in the sum of $3,725.50 in relation to the bankruptcy proceeding; and

(c)the costs award in favour of the Ministry in the sum of $25,792.935 following Mr McGuire’s unsuccessful application for judicial review.6

[12]              The parties were to endeavour to settle the costs claimed. If they could not do so, the Ministry was to file an application and submissions by 12 April  2019 and  Mr McGuire by 26 April 2019.

[13]              The parties settled nothing and the question whether Mr McGuire had failed to pay his debts was argued before me on 29 April 2019.

Judgment creditor’s position

[14]              I asked Mr Clarke-Parker whether the Ministry really sought to bankrupt    Mr McGuire in respect of a $103.12 debt. Mr Clarke-Parker was emphatic that was not the case. In addition to the outstanding $103.12 Mr McGuire had not paid the judicial review costs award of $25,792.93. Interest has accrued on that judgment debt. As well, the Ministry contends it is entitled to costs on its bankruptcy application.

[15]              Mr Clarke-Parker explained that the Ministry finds itself continually in the position of having to take steps to require Mr McGuire to pay his debts only to be faced with Mr McGuire paying at the eleventh hour. The Ministry continues to be put

5      McGuire v Secretary for Justice [2019] NZHC 542 [judicial review costs award].

6      McGuire v Secretary for Justice [2019] NZHC 42 determined Mr McGuire’s challenge to a decision by the Secretary of Justice declining Mr McGuire’s application for approval to provide legal aid services.

to expense to recover what Mr McGuire owes and the Ministry’s application is to be viewed in that context. Further, the application cannot simply be withdrawn. Leave is required.7

Judgment debtor’s position

[16]              I suggested to Mr McGuire that rather than appearing at the hearing of an application to adjudicate him bankrupt and drawing to my attention the money he had placed on the bench before him demonstrating, he said, his ability and willingness to pay, he might instead have simply paid the amount at an earlier stage and avoided the hearing. Mr McGuire insisted he is not toying with the Ministry or the Court. He was anxious to avoid any suggestion he is being vexatious.

[17]Mr McGuire advanced three substantive points:

(a)Section 42 of the Insolvency Act applies. The judicial review judgment is being appealed. Therefore the Court can halt or refuse the Ministry’s application.

(b)Mr McGuire maintains he settled his debt and this fact is reflected in Associate Judge Johnston’s Minute issued 14 March 2019. Payment was accepted and “that is the end of the matter”.

(c)Mr McGuire contested any liability for costs. Relying on Re Peacock Mr McGuire submitted having paid the debt in full his indebtedness is “settled” and  the  Ministry  cannot  claim  costs  as  well.8  Further, Mr McGuire contends that it is he who is entitled to costs because the Ministry failed in its application before the Associate Judge. In the alternative,  if  the  Court  were  to  disagree  with  his   argument,   Mr McGuire submitted he should be given reasonable time to pay whatever costs are ordered.

7      Insolvency Act 2006, s 15.

8      Re Peacock [1956] NZLR 365 (SC).

Discussion

Halt of application

[18]              The court may adjudicate the debtor bankrupt if the creditor establishes the requirements in s 13 of the Insolvency Act.9 The first of the requirements is that the debtor owes the creditor $1,000 or more.

[19]              There is  no  question  that  Mr McGuire  owes  $103.12  to  the  Ministry.  Mr McGuire was advised on 16 January 2019 that his outstanding debts continued to accrue interest and were to be paid as soon as possible. The debts as at 16 January 2019 amounted to $16,998.88. Mr McGuire paid that exact amount on 8 March 2019. But because Mr McGuire did not pay the debt when it was demanded, interest continued to accrue. As at 8 March when Mr McGuire decided to settle his indebtedness, the debt was no longer $16,998.88, but had increased to $17,102.00 due to accrued interest of $103.12.

[20]              The fact Mr McGuire had paid almost all of the debt prior to the further call on 14 March 2019 did  not mean he had discharged his  indebtedness.   And nor,  as    Mr McGuire contends, did the Associate Judge say as much. The Associate Judge referred to the matter before him on 14 March 2019 as the “tail end” of bankruptcy proceedings because “all but $103.12 of the debt remains outstanding”.10

[21]              The debt does not have to be the same debt at all times. Where the Court has jurisdiction to make an adjudication order, that jurisdiction may be “conferred further and additionally as other debts come into existence”.11

[22]              Mr McGuire was fully aware of the position. The numerous communications from Meredith Connell invariably included a table showing the recalculated total debt owing as at the date of each communication. While the amounts owed pursuant to each judgment debt remained static, the amount of interest on each judgment debt rose

9      Insolvency Act 2006, s 36.

10     The Associate Judge obviously meant all but $103.12 had been paid.

11     Body Corporate 68792 v Memelink [2017] NZHC 905 at [53].

slightly but inevitably.    Each increased sum of interest was accompanied by an explanation along the following lines:

Plus interest on the judgment debt of $2,500.00 at the rate of 5 per cent per annum for the period from 10 March 2015 to 19 December 2018 being 1381 days at a daily rate of approximately $0.34.

[23]              Thus, in order to settle his indebtedness, Mr McGuire was obliged to pay the amount due when it was due and not at a later date by which time the debt had increased further. Not having paid the $103.12 residue Mr McGuire did not settle his indebtedness to the Ministry as at 8 March 2019 when he paid $16,998.88.

[24]              The Ministry seeks to add to the debt, the costs it claims on its bankruptcy application. Yet as at 29 April, the date of the hearing, there had been no final determination of the Ministry’s application, no costs award (to either party) and therefore no increase in Mr McGuire’s indebtedness by reason of a costs order in the bankruptcy proceedings. Furthermore, Mr McGuire’s position is that because he staved off bankruptcy before the Associate Judge on 13 December 2018, he is entitled to costs. I return to the issue of costs.

[25]              In addition to the $103.12 residue, and the costs which it claims, the Ministry relies on the judicial review costs award (referred to at [11](c) and [14] above). In that regard, Mr McGuire invokes s 42 of the Insolvency Act 2006 on the grounds he has appealed the High Court decision dismissing his application for judicial review.

[26]              Section 42 empowers the court to halt or refuse a creditor’s application for bankruptcy if the judgment underlying the bankruptcy notice is being appealed. Section 42 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.

[27]              Mr Clarke-Parker did not dispute that s 42 applied. But counsel highlighted the discretion the court possessed under s 42 and emphasised the nature of the judicial review costs award. It was a court order and constitutes a further debt owed to the Ministry.

[28]              I propose to halt the Ministry’s application for bankruptcy but not pursuant to s 42. The preconditions for the exercise of the discretion under s 42 are not met. The appeal Mr McGuire filed on 1 March 2019 was not an appeal “against the judgment or order underlying the bankruptcy notice”.12

[29]              Section 38, however, is in more general terms and, for the reasons that follow, I consider it is appropriate to exercise the court’s broader discretion under s 38 to halt the Ministry’s application for adjudication.

(a)I had suggested to Mr McGuire that his appeal could not cover the judicial review costs award because that judgment was delivered (by me) on 22 March 2019 and Mr McGuire’s appeal was filed several weeks beforehand. But, as Mr McGuire pointed out, the substantive decision determined his liability for costs. The costs award judgment merely quantified the amount. Mr McGuire is correct. Mr McGuire’s application for judicial review was dismissed and, in my judgment delivering that result, I added:13

Costs follow the event but if the parties are unable to agree costs they may file focussed memoranda not exceeding five pages, Mr McGuire filing his memorandum within 10 working days of service on him of any memoranda filed by the defendants.

12     Insolvency Act, s 42(2).

13     McGuire v Secretary for Justice, above n 6 at [116].

(b)As at 31 January 2019 when the substantive judgment was delivered, the parties understood that Mr McGuire had a legal liability to pay costs to the Ministry although the  exact  sum  was  undetermined.  Thus, Mr McGuire’s legal liability to pay costs to the Ministry existed from the time the substantive judgment was delivered on 31 January 2019.

(c)If Mr McGuire is successful in his appeal, then the amount of his debt to the Ministry may fall below the $1,000 amount prescribed in s 13 (as a precondition for making an application). Although that outcome may not terminate jurisdiction, it would be arguably improper to exercise the Court’s discretion to bankrupt Mr McGuire for a debt that would then be less than the amount the legislature has indicated is the minimum to warrant instigation of the bankruptcy jurisdiction.

(d)I take the view that, although s 42 is inapplicable, it is appropriate to halt the application under s 38, for reasons that are broadly analogous to one of the rationales for halting under s 42. That is, to preserve what might be a relevant factor to the exercise of this Court’s discretion pending the outcome of the appeal.

[30]              I am clear that, to the extent the bankruptcy application rests on the judicial review costs award of $25,792.93, the application should be halted pending determination of Mr McGuire’s appeal by the Court of Appeal. If his appeal is dismissed the Ministry can expect the judicial review costs award to be paid. I am not required to attempt an assessment of the merits of Mr McGuire’s appeal.14 A debtor  is expected to pay her or his debts when the debts fall due. This particular sum fell due as recently as 22 March 2019 and Mr McGuire is entitled to appeal his liability to pay it. I am mindful of the fact that this Court has no control over Mr McGuire’s prosecution of the appeal, but the Court of Appeal does, and I am somewhat comforted by the fact the Ministry, as a party to the appeal, will be aware of any breaches by

14 See for example Nightingale v James [2018] NZHC 965 at [16], citing Ramsay Healthcare Australia Ltd v Compton [2017] HCA 28, (2017) 345 ALR 534 and Brambles New Zealand Ltd v Braid [2018] NZHC 1187 at [10].

Mr McGuire of the obligations on him to satisfactorily progress the appeal towards a hearing.

[31]              In these circumstances I consider it is just and equitable to exercise my discretion to halt the bankruptcy application pending determination of the appeal by the Court of Appeal. If Mr McGuire is unsuccessful he will be expected to pay the judicial review costs award within a reasonable period of time unless he is excepted from doing so by court order.

Costs

[32]              I turn to the costs of this proceeding. When the matter came before him by way of first call on 13 December 2018, Associate Judge Johnston declined to adjudicate Mr McGuire bankrupt and adjourned the proceeding to March 2019 to provide a final opportunity to Mr McGuire to settle his indebtedness to the Ministry. At the call on 14 March 2019 the parties were directed to file, within five working days, memoranda informing the Court whether or not all outstanding matters had been resolved.

[33]              The Ministry made a further demand for payment of the outstanding debt15 and also claimed from Mr McGuire costs totalling $3,725.50. Mr McGuire considered the costs claim was premature because the Ministry’s application had not been finally determined. He filed a memorandum seeking a hearing of the outstanding issues.

[34]              The memorandum of counsel for the Ministry filed on 29 March 2019 confirmed the issues had not been settled. The sum of $103.12 was outstanding; the judicial review costs award was outstanding; and the Ministry claimed costs and disbursements  in  the  sum  of  $3,725.50.  If  an  order  were  made  adjudicating  Mr McGuire bankrupt, further costs of $446.00 would be sought for sealing the order.

[35]              Counsel handed up during the hearing, the following schedule of costs claimed by the Ministry as at 29 April 2019.

15     The $103.12 residue and the judicial review costs award.

Schedule of Costs

Time allocations:
Daily recovery rate – Scale 2B @ $2,230 per day

Item	Description	Allocated days    or part days	Amount
45	Filing application for adjudication by creditor	.6	1,338.00
46	Appearance at hearing on 13 December 2018	.4	892.00
46	Appearance at hearing on 14 March 2019	.4	892.00
46	Appearance at hearing on 29 April 2019	.4	892.00
29	Sealing order	.2	446.00
Totals	2.0	$4460

Schedule of disbursements

Description	Amount
Filing a creditor’s application for adjudication	500.00
Service fee on summons etc	103.50
Sealing an order for bankruptcy	50.00
Total disbursements	$653.50

[36]              The total costs sought exceed the amount claimed before the Associate Judge in March 2019.  That  is because the latest  figure takes account  of the hearing on  29 April.

[37]              In the course of his reply, Mr Clarke-Parker submitted a conditional order for bankruptcy might be made such as had been made by Associate Judge Johnston on 21 May 2018.16 At the conclusion of a hearing on 17 May 2018, the Associate Judge made an order adjudicating Mr McGuire bankrupt. However, if by 4 pm the following day Mr McGuire paid the outstanding debt, along with costs and disbursements, the order for adjudication would not come into force and the Ministry’s application would be treated as having been withdrawn by consent.

[38]              I was initially attracted to the invitation to make a conditional order but the issue of costs was outstanding. Mr Clarke-Parker and Mr McGuire considered costs

16     Ministry of Justice v McGuire HC Palmerston North CIV-2016-454-118, Minute dated 21 May 2018 at [2].

were capable of being settled and I agreed to a 15-minute adjournment to allow counsel and Mr McGuire to discuss, and attempt to settle, costs.

[39]No such attempt was made, it seems, by Mr McGuire who did not reappear.

[40]              Although the registrar had been unable to locate Mr McGuire, I decided to return to the courtroom after an adjournment of just over 20 minutes. Mr Clarke- Parker understood Mr McGuire had gone to the Law Society library to attempt to pay the $103.12 debt. Apparently, there were no discussions between Mr McGuire and counsel. I was unimpressed with this waste of court time. A one-hour hearing had been allocated. Beyond that one hour, I had accommodated an adjournment for the sole purpose of giving the parties an opportunity to agree costs. That seems not to have even been attempted and, without explanation, Mr McGuire had not returned to the courtroom by the time I retired at 11.43 am.

[41]              Mr McGuire regards as aggressive the Ministry’s attempts to recover the debts owed. When Mr McGuire made a similar point in May 2018 albeit in a different proceeding the Associate Judge observed:17

…a review of the correspondence before the Court indicates that this reflects a restrained approach on the Ministry’s part to recovery of this debt, largely at Mr McGuire’s request. I am not in a position to assess the reasonableness or otherwise of the parties’ negotiating positions over the years. Nor …is that a relevant consideration in determining whether an order should be made. I simply do not follow the suggestion that the Ministry is being harsh in expecting Mr McGuire to pay these long outstanding costs.

[42]              Notwithstanding my initial attraction to a conditional order for bankruptcy along the lines of the order made by the Associate Judge, I have not thought it appropriate in the circumstances before me to do so. The debt owed by Mr McGuire as at 29 April 2019, the date of the hearing, was $103.12 and included, of course, the judicial review costs award. That liability for costs is under appeal. In those circumstances the use of a conditional order would seem to be more a mechanism to enforce payment of the debt of $103.12 (plus accrued interest) rather than proper

17 At [10].

recourse to the bankruptcy jurisdiction, which is to “provide an appropriate means of dealing with insolvency, and not debt collection”.18

[43]              I consider costs are appropriately reserved. The effect of this judgment is to place the application in abeyance pending the outcome of Mr McGuire’s appeal. If Mr McGuire is unsuccessful, and does not pay the costs owed to the Ministry, the Ministry may wish to continue its application for adjudication. It is appropriate that costs be determined following final disposition of the application for bankruptcy.

Result

[44]              An order is made pursuant to s 38 of the Insolvency Act halting the Ministry’s application for adjudication pending determination of Mr McGuire’s appeal to the Court of Appeal.

[45]              If Mr McGuire does not take the steps necessary to prosecute his appeal, the Ministry may apply to resume its application.

[46]Costs are reserved.

Karen Clark J

Solicitors:

Meredith Connell, Wellington

18     Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [18].