Ministry of Justice v McGuire
[2017] NZHC 742
•13 April 2017
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2016-454-118 [2017] NZHC 742
IN THE MATTER of the Insolvency Act 2006 BETWEEN
THE MINISTRY OF JUSTICE Judgment creditor
AND
JEREMY JAMES MCGUIRE Judgment debtor
Hearing: 6 April 2017 Appearances:
S M Kinsler and S K Shaw for the judgment creditor
J J McGuire in personJudgment:
13 April 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
CONTENTS Background........................................................................................................................................ [2]
Mr McGuire’s amended application to set aside the bankruptcy notice
and the Ministry’s notice of opposition ......................................................................................... [32] Applications to set aside bankruptcy notices — General principles ........................................... [34]
The parties’ submissions ................................................................................................................. [40] Mr McGuire .................................................................................................................................. [40] The Ministry ................................................................................................................................. [57]
Discussion and conclusions ............................................................................................................. [68]
[1] Mr McGuire applies to set aside a bankruptcy notice issued by the Ministry of Justice (the Ministry) on 13 December 2016 (the bankruptcy notice). The bankruptcy notice required Mr McGuire to pay the Ministry the sum of
$31,281.86, being the amount of a costs order made against Mr McGuire in this court in 2013 (the 2013 costs award). The bankruptcy notice also claimed interest at
the rate of 5% per annum calculated from 9 November 2016.
THE MINISTRY OF JUSTICE v MCGUIRE [2017] NZHC 742 [13 April 2017]
Background
[2] Mr McGuire is a barrister and solicitor, who until September 2010 held a legal aid contract with the Legal Services Agency (the LSA) for the provision of legal services to legally aided clients. His contract with the LSA was cancelled by the LSA in September 2010.
[3] Mr McGuire sought a review of the cancellation decision by the LSA’s Cancellation Review Panel (the Review Panel), but the decision was affirmed by the Review Panel.
[4] Mr McGuire then commenced a judicial review proceeding in this court, seeking to have the Review Panel decision set aside. The application for judicial review was dismissed by Dobson J on 26 April 2013.1 In the judgment dismissing the application for review, His Honour confirmed the Ministry’s entitlement to costs, and invited counsel to file memoranda.2 The memorandum subsequently filed on behalf of the Ministry sought an award of costs of $30,248 on a 2B basis, plus disbursements of $905.76 (total $31,153.76). A memorandum filed on behalf of Mr McGuire advised that the Ministry’s costs claim was not disputed.
[5] On 8 August 2013 Dobson J issued a minute in which he stated that he was satisfied that an award on a 2B basis was appropriate. His Honour confirmed that the Ministry was entitled to the costs and disbursements which I have referred to as the 2013 costs award.
[6] The judgment which was subsequently sealed referred to both the dismissal of Mr McGuire’s application for judicial review and the 2013 costs award. The sealed judgment shows the orders as having been made on 26 April 2013.
[7] In his affidavits filed in support of his application to set aside the bankruptcy notice Mr McGuire set out his views on what he regards as a wrongful decision to cancel his legal aid contract, and wrongful failures by the Review Panel, the
High Court, the Court of Appeal and the Supreme Court, to put the matter right. He
1 McGuire v Ministry of Justice [2013] NZHC 894.
2 At [90].
says that he still cannot understand why the judicial review proceeding was unsuccessful. He did acknowledge at the hearing, however, that evidence directed to the merits of the cancellation decision and the subsequent court decisions is not directly relevant to the application he now makes to set aside the bankruptcy notice.
[8] The application to set aside the bankruptcy notice is largely concerned with negotiations entered into between Mr McGuire and his counsel, and the Crown Law Office, in the period between May 2013 to May 2014. Among the matters discussed was whether Mr McGuire would be required to pay the 2013 costs award. Mr McGuire says that it was “implicitly agreed” that he would not be required to pay, provided he did not appeal the judgment of Dobson J.
[9] Mr McGuire refers to an exchange of emails between Mr Hodson QC, senior counsel who acted for him in the judicial review proceeding, and Mr Gunn of the Crown Law Office. The emails produced by Mr McGuire show that he authorised Mr Hodson to negotiate with Crown Law or the Ministry, and that Mr Hodson arranged a meeting with Mr Gunn. Mr McGuire’s instruction to Mr Hodson was that he would be applying for a new contract to provide legal aid services, and that he would need some form of written or concrete assurances that he would get his legal aid contract reinstated “provided I measure up before the time to appeal expires”. In an email to Mr Hodson on 10 May 2013, he advised that he would make an urgent application the following week.
[10] Mr Hodson duly met with the lawyers at the Crown Law Office. He summarised that discussion in an email to Mr McGuire dated 14 May 2013, in the following terms:
Result of discussion:
As to costs; the case has resulted in substantial expense to the LSA/Ministry. Further, as a matter of policy it will require a sealed costs order so that other legal aid providers with whom there is litigation will not see a precedent for not pursuing them. It acknowledges that the contract should not have been cancelled when it was, given what Dobson J says about the CCP, and it acknowledges that the CRP process was less than ideal. It further acknowledges my point that you are not to be supposed to be in a position to pay. Crown Law will seek instructions to propose an amount based on lowest scale for agreement and sealing. Separately it will seek instructions
to provide you with a letter saying that there will be no attempt to execute the order unless your circumstances materially alter (e.g. winning Lotto!)
Roger Howard will let me know today or tomorrow morning what process the Ministry will follow in processing your application with all due speed and diligence.
I did not hand it to them. We discussed the Ministry’s likely attitude. I was advised there is no ill will, those involved have gone and the present people see the cost to you of what you have gone through. Grant Smith was quoted as saying you had paid heavily for a mistake. You will, I was assured, have your application fairly managed.
It was suggested that the application should look forwards, and the Ministry already knows all there is to know about the past. I suggest you reconsider paras 5–10 and 12–13 and consider omitting them. Para 11 is the right note. I again recommend Sarah Kelly to you.
If as a result of this you feel the need to file an appeal, particularly if it is a matter of time, you should do so giving briefest possible grounds and accompany it with a letter to the [Court of Appeal] and Crown Law that at this stage of negotiations the notice is filed against time. The Ministry will understand this and not hold it against you in the course of managing the present outcome. If later you decide to proceed with the appeal then all bets are off.
Gunn and Howard are seeking instructions ASP, all the above without prejudice. They both evinced goodwill and regret, rather than any ill will.
Regards
[Mr Hodson]
[11] Mr McGuire then prepared a notice of appeal against the decision of Dobson J dismissing his application for judicial review, and that notice was sent by Mr Hodson to the solicitors at Crown Law, in draft form, on 21 May 2013. Mr Hodson said that the appeal was “to be filed against time if necessary”. He expressed his understanding that an answer might be available on Mr McGuire’s fresh application to be appointed a legal services provider in the week of 10 June, but acceleration would be highly appreciated. He also signalled that a separate application in respect of criminal legal aid assignments would be filed by Mr McGuire shortly.
[12] On the same day Mr McGuire sent a copy of his notice of appeal as filed to Mr Gunn at Crown Law. He referred to the advice he had received from Mr Hodson that Mr Gunn was trying to liaise with his client (the Ministry) about a potential
resolution and settlement of matters. Mr McGuire said he would welcome that, and would appreciate anything Mr Gunn could do to assist. In the meantime, Mr McGuire had filed the appeal to protect himself in case those efforts were unsuccessful.
[13] It appears that Mr McGuire did not receive any further confirmation from the
Ministry or its advisors until October 2013. In an email to Mr Hodson dated
22 October 2013, copied to Mr Gunn at Crown Law and to the administrator handling Mr McGuire’s application for a new legal aid contract, Mr McGuire advised that he had been told that his application for a new legal aid contract would be decided by the end of the following week. He said that he intended to liaise with Mr Gunn direct over all aspects of the appeal (“costs mainly”), on the assumption that he would be getting a new family law legal aid contract. If he got the legal aid contract he would be prepared to forget the appeal, despite the fact that he thought the initial decision of Dobson J was not correct. In his covering email to Mr Gunn, Mr McGuire noted that the issues for him were costs, (including Mr Hodson’s fees) and his hope to get a legal aid contract. He said that if he did not, he would have no other option but to pursue the appeal.
[14] In anticipation that the appeal would be discontinued, Mr McGuire proposed the following:
1.that there would be “some sort of negotiated agreement and arrangement over the payment of Mr Hodson’s legal fees for the Ministry”;
2.that Mr McGuire would not have to pay the costs on the judicial review; and
3.that Mr McGuire would have his various filing fees reimbursed, and perhaps nominal other disbursements, such as agreed photocopying and commuting costs to and from Wellington.
[15] It appears that by 22 October 2013 Mr McGuire had missed a deadline for taking at least some steps to advance his appeal to the Court of Appeal. However he made light of that in his email to Mr Gunn on 22 October 2013, saying that he knew there was a “small issue about possible abandonment”, but he did not anticipate that that would impede any appeal.
[16] Mr Gunn took instruction from the Ministry, and responded by email on
24 October 2013. He first sought to separate the issues of (i) whether any new legal aid contract would be awarded, and (ii) the resolution of any costs or other issues arising out of the recent litigation. On the question of the 2013 costs award, Mr Gunn noted that the way the proceeding had been pursued by Mr McGuire consumed considerable resource and incurred significant cost. While Mr McGuire had made it plain that he did not accept the High Court decision, Mr McGuire had offered “no justification as to why the Ministry should pay Mr Hodson’s fees, or your filing fees or ‘disbursements’ ”. Mr Gunn advised that:
Whether the Ministry chooses to enforce the [2013 costs award] is still under consideration, but there seems no principled, reason why it should not.
[17] Mr Gunn went on to reject Mr McGuire’s proposal set out at para 14 of this judgment.
[18] By January 2014 it appears that the Ministry had determined to pursue the recovery of the 2013 costs award. Ms Farrell, a solicitor then employed at the Ministry, wrote to Mr McGuire on 29 January 2014 seeking payment of the 2013 costs award. And in an email to Mr McGuire dated 3 March 2014 Mr Gunn rejected the suggestion that there existed an implicit understanding that the 2013 costs award would not be enforced. Mr Gunn referred to the position as stated in his email of
24 October 2013, and advised that enforcement of the 2013 costs award was now a matter entirely for the Ministry. Any questions Mr McGuire might have should be referred to them.
[19] A further letter was sent by Ms Farrell to Mr McGuire on 11 March 2014, demanding payment of the 2013 costs award within ten working days. She advised
in the letter that if Mr McGuire did not pay, the Ministry would have no option but to take enforcement proceedings against him.
[20] Mr McGuire replied on 13 March 2014, enquiring if Mr Hodson’s email dated 14 May 2013 did not make any difference to the Ministry. He said that he would very reluctantly appeal the decision of Dobson J on his unsuccessful application for judicial review if he was forced to by the Ministry over costs.
[21] Ms Farrell wrote again to Mr McGuire on 2 April 2014, making a further demand for payment of the 2013 costs award. She pointed out that Mr Hodson had told Mr McGuire back on 14 May 2013 that Mr Gunn and Mr Howard were seeking instructions, and that the discussions at that time were conducted on a without prejudice basis. Further, Mr McGuire had been advised by Mr Gunn on 24 October
2013 that the question of whether the Ministry would enforce the 2013 costs award was still under consideration. A decision was subsequently made to enforce the 2013 costs award.
[22] Mr McGuire then attempted to “reactivate” his appeal to the Court of Appeal. He filed a further application for an extension of time on 15 April 2014. That application was eventually dismissed by the Court of Appeal.3
[23] Ms Farrell sent a further demand for payment of the 2013 costs award on
19 May 2014. She pointed out that Mr McGuire’s appeal did not affect his liability to pay under the 2013 costs award. Mr McGuire replied immediately, advising that he would be applying for a stay until the appeal was determined. Ms Farrell replied asking Mr McGuire to provide a copy of his stay application within five working days. She said that enforcement steps would follow if a stay application was not received within that period.
[24] It appears that no further steps were taken by the Ministry at that point. Ms Majeed, the solicitor at the Ministry who is now handling the matter, says that Ms Farrell left the Ministry in September 2014, leaving a note on the file dated
19 May 2014 indicating that the Ministry had decided to hold off enforcing the 2013
3 McGuire v Ministry of Justice [2014] NZCA 556 at [3].
costs award until Mr McGuire’s appeal was concluded. The Ministry would then
proceed with bankruptcy proceedings.
[25] On 19 November 2014 the Court of Appeal declined Mr McGuire’s application for an extension of time to pursue his appeal, and awarded additional costs against him.4 An application by Mr McGuire for leave to appeal to the Supreme Court was refused on 10 March 2015.5
[26] Mr McGuire’s application for a new legal aid contract was unsuccessful. A recommendation committee recommended that no contract be given to him, and that recommendation was accepted by the Secretary for Justice (the Secretary). Mr McGuire says that he wanted to challenge that decision by way of judicial review, but he was held up for a period of approximately three years while he attempted to obtain from the New Zealand Law Society certificates of standing (necessary to support his application for a legal aid contract) which he regarded as satisfactory. There was litigation with the Law Society over that and a number of other issues, and the issue over the certificates of standing was only resolved at a mediation convened in late August 2016.
[27] With the standing certificates issue resolved, Mr McGuire was free to commence a new judicial review proceeding challenging the decision of the Secretary to decline to grant him a new legal aid contract. He filed an application for judicial review of that decision in September 2016 (the September 2016 proceeding).
[28] Mr McGuire says that it was only after he issued the September 2016 proceeding that he started to receive correspondence from the Ministry demanding payment of the 2013 costs award. He asserts that Crown Law was sympathetic to him in 2013 after he was unsuccessful in the judicial review application heard by Dobson J, and some assistance was then offered by Mr Gunn, including the forwarding of the first part of Mr McGuire’s family law legal aid application direct to the correct people at the Ministry. Mr McGuire contends that the Ministry only
“revived” the costs issue because he had filed the September 2016 proceeding. He
4 McGuire v Ministry of Justice, above n 3.
5 McGuire v Ministry of Justice [2015] NZSC 24.
says that if he is bankrupted he will be unable to continue the September 2016 proceeding, and observes that that would be a convenient result for the Secretary.
[29] The Secretary applied for security for costs in the September 2016 proceeding, and also applied to strike out part of Mr McGuire’s statement of claim. The application for security for costs was based in substantial part on Mr McGuire’s failure to pay the 2013 costs award.
[30] The strike-out application was dismissed by Cull J on 7 March 2017,6 and the application for security for costs was withdrawn, apparently on the basis of an assurance given by Mr McGuire that he would be able to meet any costs award which might be made against him.
[31] Mr McGuire says that he does not know what the connection is between the Secretary and the Ministry, but he observes that they occupy offices on the same floor of the same Wellington building. He says it would be unrealistic not to expect some dialogue or contact between counsel representing the Secretary in the September 2016 proceeding and Ms Majeed, the solicitor in the office of Legal Counsel at the Ministry who is now handling the Ministry’s attempts to recover the
2013 costs award from Mr McGuire.
Mr McGuire’s amended application to set aside the bankruptcy notice and the
Ministry’s notice of opposition
[32] In his amended application, Mr McGuire relies on the following grounds:
1. the “attached orders” on the bankruptcy notice are invalid under the
High Court Rules 2016;
2. the “attached orders” on the bankruptcy notice are invalid in and of
itself or themselves;
3. the bankruptcy notice is an abuse of the court’s process;
6 McGuire v Secretary for Justice [2017] NZHC 365.
4. the equitable defences of laches and acquiescence apply.
[33] In its notice of opposition, the Ministry pleads that the bankruptcy notice was issued well within the six year limitation period for recovery of money claims7 or enforcement of a judgment.8 The Ministry also pleads that the defences of laches and acquiescence are not made out as a matter of law and fact.
Applications to set aside bankruptcy notices — General principles
[34] Under s 17 of the Insolvency Act 2006 (the Act), a debtor served with a bankruptcy notice in New Zealand has a period of 10 working days after service of the notice to file and serve an application to the court to set aside the bankruptcy notice, on the ground that the debtor has a cross claim against the creditor.
[35] The expression “cross claim” is defined in s 17(7) of the Act as follows:
17 Failure to comply with bankruptcy notice
…
(7) … cross claim means a counterclaim, set-off, or cross demand that—
(a) is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and
(b) the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.
[36] Rule 24.10 of the High Court Rules provides that if an application to set aside a bankruptcy notice cannot be heard until after the expiration of the time specified in the notice on the day on which the act of bankruptcy will be completed, the time is treated as extended until the application has been determined.
[37] The learned authors of Brookers Insolvency Law and Practice9 note that a debtor arguing that he or she has a cross claim must demonstrate that the cross claim
is a claim of true substance which he or she genuinely proposes to pursue (Sharma v
7 Limitation Act 2010, s 11.
8 Limitation Act 2010, s 35.
9 Brookers Insolvency Law and Practice (online looseleaf ed, Thomson Reuters) at [IN 17.10].
ANZ Banking Group (1992) 6 PRNZ 386, [1992] 3 NZBORR 183 (CA)), or a
“genuine triable demand” (Thomasen v Nigro CA124/76, 19 July 1978).
[38] In addition to the “cross claim” ground of opposition, the court retains an inherent jurisdiction to prevent any abuse of process in the issue of a bankruptcy notice.10 In Re Wise, Master Kennedy-Grant considered that the court’s inherent jurisdiction to prevent abuse of process could be exercised where there had been a procedural defect in obtaining the judgment on which the bankruptcy notice was based, or where arguable grounds of defence to the claim in respect of which judgment had been given were put forward. His Honour considered that the grounds on which the jurisdiction could be exercised might extend beyond those grounds to
any ground on which the court considered it necessary to intervene to prevent injustice.
[39] In Re Krukziener, ex parte Hanover Finance Ltd, Associate Judge Abbott considered that the court should intervene in the exercise of its inherent jurisdiction only in very special circumstances (at least where there had been no procedural defect in obtaining the judgment, or there were no arguable grounds of defence to the claim for which judgment had been given).11 In Re Reynolds, ex parte Bartlett,12
Associate Bell observed that the inherent jurisdiction may not be as narrow as that
described by Master Kennedy-Grant in Re Wise, but in any event the exercise of the power to set aside must be to prevent an abuse of process. On the facts in Re Reynolds, the Associate Judge did not find sufficient grounds to exercise the court’s inherent jurisdiction.
The parties’ submissions
Mr McGuire
[40] Mr McGuire’s first point is that the sealed orders which were attached to the bankruptcy notice should have shown the date of the 2013 costs award as 8 August
2013. Instead, the orders were shown as having been made on 26 April 2013.
10 Re Wise HC Auckland B227/95, B228/95, 21 June 1995.
11 Re Krukziener, ex parte Hanover Finance Ltd HC Auckland CIV-2007-404-2896,
22 December 2008
12 Re Reynolds, ex parte Bartlett [2014] NZHC 447.
[41] Dobson J dealt with the issue of costs in his judgment of 26 April 2013. His Honour said:13
The defendant is entitled to costs. I invite counsel to file memoranda in sequence, if the matter of costs cannot be settled.
[42] The sealed orders read:
THIS proceeding was heard on 26 April 2013 at the High Court at Wellington before the Honourable Justice Dobson, who, having heard from C J Hodson, counsel for the plaintiff, and P Gunn and D Consedine, counsel for the defendant, and having heard the evidence adduced, gives judgment that:
1. The application for judicial review is dismissed.
2. The defendant is entitled to costs on a 2B basis.
After reading counsel for the defendant’s memoranda on costs dated
29 May 2013, this court orders:
3.The defendant is entitled to costs in a sum of $30,248.00 and disbursements in a sum of $905.76, totalling $31,153.76.
Date: 26 April 2013
[43] The bankruptcy notice described the amount claimed as “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 Wellington High Court on 26 April 2013”. The bankruptcy notice went on to state that “a copy of the judgment or order on which the bankruptcy notice is attached”.
[44] Mr McGuire submits that the “attached orders” are invalid, because they do not state the date on which the relevant order was made. He relies on r 11.11 of the High Court Rules, para (4)(a) of which provides that a sealed judgment must state “the date on which the judgment is given”. Although the sealed orders did refer to the memorandum on costs from the Ministry dated 29 May 2013, that memorandum was not a court order, and the reference to the memorandum cannot cure the failure to include in the orders (and in the subsequent bankruptcy notice) the date on which
the 2013 costs award was actually made.
13 McGuire v Ministry of Justice, above n 1, at [90].
[45] Mr McGuire also submits that a valid debt, including a judgment debt, is a “chose in action”, and in this case the Ministry is attempting to enforce an invalid chose in action (because the orders failed to mention the 8 August 2013 date on which the 2013 costs award was made).
[46] Mr McGuire submits that the non-compliance with r 11.11 was not merely a minor technical breach, as submitted by Mr Kinsler in his written submissions for the Ministry. Mr McGuire submits that he has been prejudiced by the error in the judgment as sealed. He submits that the “slip rule”14 could not have been used to correct the non-compliance. In response to a question from the court as to how he had been prejudiced, Mr McGuire responded that the orders were “not correct and could easily have been corrected”.
[47] For the foregoing reasons, Mr McGuire submits that the Ministry was not a judgment creditor at the time it issued the bankruptcy notice, as there was no valid judgment or order of the court against him (citing r 24.8(2)(a) of the High Court Rules).15
[48] The final alleged procedural defect relied upon by Mr McGuire is that the “attached orders” had not been served on him, as required by r 11.11(5)(a) of the High Court Rules.
[49] Mr McGuire’s second line of argument is based substantially on the lengthy delay between the making of the 2013 costs award and the issue of the bankruptcy notice in December 2016. He submits that the Ministry has failed to account for this “huge delay”, and the delay, considered with the May 2013 negotiations, as described by Mr Hodson in his email to Mr McGuire dated 14 May 2013,16 supports
an inference that it was never intended that the 2013 costs award would be enforced.
14 High Court Rules, r 11.10, under which a judgment or order may be corrected by the court or the Registrar who made it, if it contains a clerical mistake or an error arising from an accidental slip or omission, whether or not made by an officer of the court, or has been drawn up so that it does not express what was decided and intended.
15 Rule 24.8(2)(a) provides:
(2) The Registrar may approve the issue of a bankruptcy notice if —
(a) the request is founded on a judgment or order of a court ….
16 Reproduced at para [10] of this judgment.
[50] Mr McGuire relies on the court’s inherent jurisdiction to prevent abuses of its processes, including the improper issue of a bankruptcy notice (citing Holmes Construction Wellington Ltd v Rees).17
[51] In addition to the long delay, Mr McGuire points to the timing of the issue of the bankruptcy notice, just after he had commenced the September 2016 proceeding. He submits that it is reasonable to infer that the Secretary and the Ministry’s officers were attempting to use the issue of the bankruptcy notice to prevent or deter him from pursuing the September 2016 proceeding. In support of that submission, he refers to a memorandum filed in the September 2016 proceeding by counsel for the Secretary, in which counsel stated:
… In the course of these proceedings, the Office of Legal Counsel at [the Ministry] has become aware that [Mr McGuire] has failed to pay costs orders arising from previous unsuccessful proceedings he has brought against the Ministry.
[52] Mr McGuire also refers to the Secretary’s failed attempt to strike out parts of his statement of claim in the September 2016 proceeding, and the Secretary’s decision, communicated to Mr McGuire on 10 March 2017, to withdraw the application for security for costs.
[53] Mr McGuire’s last ground for setting aside the bankruptcy notice, is that the Ministry has been guilty of either laches or acquiescence (referring to Eastern Services Ltd v No. 68 Ltd [2006] NZSC 42, [2006] 3 NZLR 335, and Wellington City Council v New Zealand Law Society [1990] 2 NZLR 22 (CA)), and it would now be unconscionable to allow the Ministry to enforce the 2013 costs award. Mr McGuire submits that a delay of about 1,326 days before the issue and service of the bankruptcy notice was inordinately long for a party who considered that a debt was really owed to it, and was seriously interested in recovering the debt. He submits that that must be particularly so in the case of the Ministry, a government department with many lawyers, in circumstances where the judgment debtor is also a lawyer.
[54] Referring to the negotiations conducted by Mr Hodson on Mr McGuire’s
behalf in May 2013, Mr McGuire relies in particular on that part of the first
17 Holmes Construction Wellington Ltd v Rees HC Auckland CIV-2006-404-4219, 17 July 2009.
paragraph of Mr Hodson’s May 14 2013 email in which he reported that: “Crown Law will seek instructions to propose an amount based on lowest scale for agreement and sealing. Separately it will seek instructions to provide you with a letter saying that there will be no attempt to execute the order unless your circumstances materially alter (eg winning Lotto!)”. Mr McGuire likens the situation to that of a creditor attempting to sue on a stale cheque, and submits that the issue of the bankruptcy notice was a clear case of “tit-for-tat” after Mr McGuire issued the September 2016 review proceeding. He asks that the bankruptcy proceedings be stayed indefintately.
[55] Mr McGuire does accept that Crown Law never advised him that it had received instruction from the Ministry that the 2013 costs award would not be enforced. He also accepts that no such communication was made by any officer of the Ministry. Mr McGuire nevertheless submits that the circumstances support an inference that it was understood that the 2013 costs award would not be pursued.
[56] In support of his unconscionability argument, Mr McGuire relies on the following factors:
(a) the long delay by the Ministry before it took steps to enforce the 2013 costs award;
(b)the email correspondence between himself, Mr Gunn, and Mr Hodson in May 2013;
(c) the timing of the issue of the bankruptcy notice shortly after the filing of the September 2016 proceeding; and
(d)the evident communication and cooperation between the Secretary and officers at the Ministry involved with the enforcement of the 2013 costs award (as acknowledged in the memorandum of counsel for the Secretary filed in the September 2016 proceeding on 30 November
2016 when the non-payment of the 2013 costs award was referred to
as the substantial basis for the Secretary’s application for security for
costs).
The Ministry
[57] Mr Kinsler submits that the bankruptcy notice did sufficiently comply with the High Court Rules. In the alternative, he submits that any non-compliance is minor and technical, and would not justify preventing the Ministry from enforcing its right to payment.
[58] The costs minute made by Dobson J on 8 August 2013 was merely a quantification of the Ministry’s entitlement to costs referred to by Dobson J in his
26 April 2013 judgment. The quantum of the costs effectively formed part of the substantive judgment. In the alternative, Mr Kinsler invites the court to exercise its powers under r 1.5(2)(b) of the Rules and s 418 of the Insolvency Act 2006 to recognise the sealed orders and bankruptcy notice as valid (relying on Commissioner of Inland Revenue v Faloon).18
[59] Mr Kinsler further submits that the failure to serve Mr McGuire with the sealed orders could not invalidate the bankruptcy notice (citing Chang-Hooker v Rooke).19
[60] On the issue of delay, and Mr McGuire’s reliance on the doctrines of laches and acquiescence, Mr Kinsler submits that neither doctrine provides any basis for a finding by the court that the issue of the bankruptcy notice was an abuse of process (referring to Eastern Services Ltd v No. 68 Ltd20 and Neylon v Dickens,21 and Wellington City Council v New Zealand Law Society).22
[61] Mr Kinsler submits that laches is a defence to a claim in equity only, and in this case the issue of the bankruptcy notice is not a claim in equity. And delay, in
18 Commissioner of Inland Revenue v Faloon [2016] NZHC 760.
19 Chang-Hooker v Rooke [2013] NZHC 1763.
20 Eastern Services Ltd v No. 68 Ltd [2006] NZSC 42; [2006] 3 NZLR 335.
21 Neylon v Dickens [1987] 1 NZLR 402 (CA) at 407, cited with approval in Eastern Services Ltd v
No. 68 Ltd, above n 20, at [33]–[34].
22 Wellington City Council v New Zealand Law Society [1990] 2 NZLR 22 (CA).
and of itself, would rarely be sufficient to defeat a claim in equity in any event
(citing Wellington City Council v New Zealand Law Society).23
[62] On Mr McGuire’s allegation of acquiescence by the Ministry, Mr Kinsler submits that a party must have actively participated in a breach of his or her own rights before seeking to enforce those rights, before there can be acquiescence. Mere delay in taking the enforcement action will not be enough (citing Butler and others, Equity and Trusts in New Zealand (2nd ed), and Krukziener ex parte Hanover Finance Ltd).
[63] Mr Kinsler submits that the Ministry acted in good faith in the intervening period between the 2013 costs award and the issue of the bankruptcy notice, and it did not mislead Mr McGuire or delay unreasonably in the enforcement of the 2013 costs award. He submits that nothing in the communications between the Crown Law Office or the Ministry and Mr McGuire or Mr Hodson could reasonably have led Mr McGuire to believe that the Ministry had decided not to enforce the 2013 costs award.
[64] Mr Kinsler submits that there has been no abuse of the court’s process in this case. Referring to the judgment of Master Kennedy Grant in Re Wise, he notes first that in this case there was no procedural defect in obtaining the judgment upon which the bankruptcy notice is based, and there can be no arguable ground of defence to the 2013 costs award. Mr McGuire must rely on the third category of case referred to by Master Kennedy-Grant, namely cases in which there is “any other ground where the court finds it necessary to intervene to prevent injustice”.
[65] Mr Kinsler refers to Re Krukziener, ex parte Hanover Finance Ltd, in which Associate Judge Abbott stated that where the underlying judgment has not been impugned and the debtor cannot establish a cross claim (as defined in s17 of the Act), the debtor must show very special circumstances before the court will exercise its inherent jurisdiction to set aside the bankruptcy notice. There are no “very
special circumstances” in this case.
23 Above n 22, at [53].
[66] Mr Kinsler further submits that there is no evidence that the Ministry has been motivated to enforce the 2013 cost award by a desire to prevent Mr McGuire pursuing the September 2016 proceeding. The issue of the September 2016 proceeding by Mr McGuire is accepted as having been the catalyst for the “revival” of the Ministry’s attempts to enforce the 2013 costs award, but the Ministry was perfectly entitled to insist on payment of the unpaid costs when Mr McGuire commenced the September 2016 proceeding, just as any other litigant would have been entitled to do. And the Ministry had made it clear long before Mr McGuire issued the September 2016 proceeding that it intended to enforce the 2013 costs award.
[67] The result of the strike-out application has no bearing on Mr McGuire’s
continuing liability under the 2013 costs award.
Discussion and conclusions
[68] I am not persuaded that there is anything in the technical point raised by Mr McGuire about the sealed orders, and the date on which the 2013 costs award was made. I accept that the orders made respectively on 26 April 2013 and 8 August
2013 should probably have been sealed as separate orders, but I cannot see anything in what has occurred which might have prejudiced Mr McGuire. The judgment of
26 April 2013 found that the Ministry was entitled to costs on the dismissal of Mr McGuire’s application, and his counsel subsequently advised the court that he had no opposing submission to make on the costs claimed by counsel for the Ministry in his memorandum of 29 May 2013. The costs claimed in the 29 May
2013 memorandum were accepted by Dobson J, and His Honour made the 2013 costs award in terms of that memorandum.
[69] A technical deficiency in a judgment or order which is attached to a bankruptcy notice will not render the notice invalid or liable to be set aside unless a person has been prejudiced by the defect. Section 418 of the Act provides:
418 Defects in proceedings
(1) A proceeding under this Act must not be invalidated or set aside for a defect (which includes misdescription, misnomer, or omission) in a
step that must be taken as part of, or in connection with, the proceeding, unless a person is prejudiced by the defect.
(2) The court may order the defect to be corrected, and may order the proceeding to continue, on the conditions that the court thinks appropriate in the interests of everyone who has an interest in the proceeding.
[70] In Commissioner of Inland Revenue v Faloon,24 Associate Judge Bell dealt with a submission by Mr Faloon that costs orders attached to the bankruptcy notices served on him were defective, because they had not been certified correct. Associate Judge Bell considered that that was not fatal. A similar objection had been taken by the judgment debtor in Harrison v Harrison,25 and it was rejected by Associate Judge Osborne (who observed that certification of an order for costs was not required because the court can take notice of its own seal upon a judgment). Mr Faloon had also contended that the applicable costs orders only gave the parties’
names and their status in the proceeding (eg applicant or respondent), without also giving their occupations and addresses, as required by r 5.11(g) and 5.12 of the High Court Rules.26
[71] Associate Judge Bell did not regard the sealed costs orders as invalid on account of those matters. They were simply irregularities, which did not prejudice Mr Faloon in any way. Mr Faloon was very experienced in litigation, and he could not have been under any mistake as to the identities of the parties to the proceedings in which the costs orders had been made.
[72] So in this case, the court is entitled to take account of its own record, which shows that costs and disbursements were awarded against Mr McGuire in favour of the Ministry, in the sum of $31,281.86. The error relates only to the date of the relevant order, and Mr McGuire knew that an application for costs had been made on a 2B basis in that sum under the High Court Rules. He must also be taken to have
known that senior counsel representing him did not oppose that application for costs.
24 Commissioner of Inland Revenue v Faloon, above n 18, at [27].
25 Harrison v Harrison [2015] NZHC 244.
26 Rule 5.11(g) requires that the statement of claim in the proceeding must show the parties’ occupations and addresses, as well as their names and their status in the proceeding, and r 5.12 provides that the heading of a judgment or an order that is required to be registered under any enactment must be the same as the heading on the statement of claim or other document by which the proceeding was commenced.
In summary, Mr McGuire is experienced in litigation matters, and I do not believe that the error made in the sealed judgment as to the date of the 2013 costs award has caused him any prejudice.
[73] Section 418(1) of the Act therefore applies, and the bankruptcy notice cannot be set aside on the grounds of the failure to comply with the High Court Rules which Mr McGuire alleges. Under s 418(2) of the Act, I direct that the proceeding is to continue, with the last subpara of para 1(a) of the bankruptcy notice amended to read:
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 Wellington High Court on 26 April 2013 (as to liability) and 8 August 2013 (as to quantum).
[74] Mr McGuire also submits that there was a defect in the procedure adopted by the Ministry, in that it did not serve the sealed orders on him as required by r 11.11(5) of the High Court Rules. On this point I accept the Ministry’s submission, based on the judgment of Associate Judge Christiansen in Chang-Hooker v Rooke, that the court does not require to know whether a sealed copy of a judgment has been served when it issues a bankruptcy notice. Rule 11.11(5) has no effect on the issue
of a bankruptcy notice.27
[75] Turning to Mr McGuire’s more substantial grounds of opposition, being the allegations of delay, laches, and/or acquiescence and/or unconscionability, I accept Mr Kinsler’s submission that I am not concerned here with any cross claim of the kind defined in s 17(7) of the Act. If Mr McGuire is to succeed with his application, he must do so on the grounds of circumstances showing that there is at least a genuinely triable issue of abuse of process on behalf of the Ministry.
[76] I am not satisfied that Mr McGuire has made out a sufficiently arguable case of abuse of process.
27 Chang-Hooker v Rooke, above n 19, at [4].
[77] First, there is no evidence of any binding agreement between the Ministry and Mr McGuire that the Ministry would not enforce the 2013 costs award. The highest Mr McGuire’s case can be put is that, on or about 14 May 2013, the solicitors at Crown Law undertook to take instruction on a proposed agreement which would see the Ministry not enforce the 2013 costs award. I accept that the solicitors who were involved at Crown Law expressed some sympathy for Mr McGuire’s position, and that they wished to assist him where they could. But they did not have authority to bind the Ministry to any agreement which would have absolved Mr McGuire from liability for the 2013 costs award, and that was made clear to Mr Hodson, who in turn made it clear to Mr McGuire in his email dated
14 May 2013 (last paragraph, reproduced at para [10] of this judgment).
[78] Mr McGuire was fully aware at that stage that he had no binding agreement, and to guard against any “unravelling” of the proposal discussed between Mr Hodson and Mr Gunn he lodged an appeal against the judgment of Dobson J.
[79] There was nothing after that date which might reasonably have led Mr McGuire to believe that he had an agreement with the Ministry that the 2013 costs award would not be enforced. Certainly there was a delay of some months before the costs question was raised again in October 2013, but the position was then made clear to Mr McGuire in Mr Gunn’s email dated 24 October 2013. Mr Gunn noted that the question of enforcement was still under consideration by the Ministry, but there seemed to be no principled reason why the 2013 costs award should not be enforced.
[80] It was made abundantly clear to Mr McGuire on 29 January 2014, when Ms Farrell wrote to him seeking payment of the 2013 costs award, that the Ministry had decided to pursue the 2013 costs award. And the suggestion that there had been an “implicit understanding” that the 2013 costs award would not be enforced was rejected in Mr Gunn’s email to Mr McGuire dated 3 March 2014. Ms Farrell followed up with a letter dated 11 March 2014, demanding payment of the costs within ten working days.
[81] Mr McGuire appears at that stage to have accepted that he did not have any binding agreement or understanding, implicit or otherwise, with the Ministry as to non-payment of the 2013 costs award. In his email of 13 March 2014 he indicated that he would reluctantly appeal the decision of Dobson J “if [he] was forced to by the Ministry over costs”.
[82] The position did not change in further correspondence between Ms Farrell and Mr McGuire in the period 2 April 2014 to 19 May 2014. The Ministry remained firm in its position that Mr McGuire was liable for the costs.
[83] It is true that no steps were taken by the Ministry to enforce the 2013 costs award between the date of the last letter written by Ms Farrell (19 May 2014) and the issue of the bankruptcy notice in December 2016. But it seems likely that the main focus of the parties for a significant part of that period was Mr McGuire’s attempts to overturn the judgment of Dobson J on appeal, and it was not until 10 March 2015 that Mr McGuire’s appeal rights appear to have been finally exhausted, when the Supreme Court refused leave to appeal. Such evidence as there is appears to support the view that the Ministry elected to await the outcome of the appeals before it took any enforcement steps against Mr McGuire (that was the thrust of the file note of
19 May 2014 referred to by Ms Majeed in her evidence).
[84] I am not satisfied that the delay by the Ministry in taking any enforcement action between 10 March 2015 and the issue of the bankruptcy notice in December 2016 was long enough to justify any inference that there was any “understanding” that the 2013 costs award would not be enforced. In view of the correspondence in the period between October 2013 and 19 May 2014, Mr McGuire must have expected that enforcement action would follow if he did not succeed with his appeal, and I think there would have to have been something emanating from the Ministry or its advisers in the period after 19 May 2014 suggesting that the 2013 costs award would not be enforced, to justify the “no-enforcement” inference which Mr McGuire invites me to draw.
[85] On Mr McGuire’s laches and acquiescence arguments, I note the statement of the authors of Equity and Trusts in New Zealand that laches developed as a means of
balancing the equities between plaintiff and defendant in the absence of statutory limitation periods, and that where a cause of action is covered by a statutory limitation period, laches is inapplicable.28 That may well be the position here. But even if a defence of laches is not precluded by the operation of the Limitation Act, the Supreme Court held in Eastern Services Ltd v No. 68 Ltd that the defence of laches cannot be established through the mere effluxion of time.29 In Eastern Services, the Supreme Court shared the caution expressed by Cooke P (for the Court of Appeal) in Neylon v Dickens about endorsing any unqualified principle concerning mere delay, without accompanying prejudice.30 And the learned authors of Butler & others, Equity and Trusts in New Zealand say that it has been stated repeatedly in the cases that delay without more is insufficient to make out laches.31
[86] Addressing the defence of laches generally, the authors of Equity and Trusts in New Zealand list a number of factors which will often be relevant in considering the defence. These factors include the nature of the remedies sought, the position of the plaintiff, any prejudice to the defendant or a third party, evidential difficulties created by delay, the nature of the transaction involved (for example if land is involved, equity will be reluctant to see an equitable interest lost or destroyed by mere inaction — Eastern Services Ltd v No. 68 Ltd, at [39]), and the length of the delay, including any explanation for it.
[87] In my view the delay in this case was not such as to tilt the balance of equities in Mr McGuire’s favour. I bear in mind that I am here concerned not with a claim, but with a step taken in respect of a judgment which the Limitation Act allows the Ministry up to six years to enforce. The “nature of the transaction involved” accordingly has little relevance to this case, and “evidential difficulties created by delay” is equally irrelevant Nor is the relevance of the “nature of the remedy
sought” clear in this case. In the end, it seems to me that any equity in
28 Butler & others Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009)
at p 1063, [38.1.4], referring to the speech of Lord Wensleydale in Archbald v Scully (1861) 9
HLC 360; 11 ER 769 (HL) (at p 383; p 778), when his Lordship said: “the fact of simply neglecting to enforce a claim for the period during which the law permits him to delay without losing his right … cannot be any equitable bar”.
29 Eastern Services Ltd v No. 68 Ltd, above n 20, at [37].
30 At [37] citing Neylon v Dickens, above n 21.
31 Equity and Trusts in New Zealand, above n 28 at p 1060, referring to Lamshed v Lamshed (1963)
109 CLR 440, p 453.
Mr McGuire’s favour could only have arisen if the Ministry had actively led him to believe at some point that the 2013 costs award would not be enforced. There is no evidence of that at all, and Mr McGuire was unable to point to any relevant prejudice caused by anything said or done by the Ministry when I invited him to do so at the hearing.
[88] I conclude that the doctrine of laches does not assist Mr McGuire in showing that there is an arguable case of abuse of process by the Ministry.
[89] Turning to the ground for setting aside based on acquiescence, I note that the term “acquiescence” is capable of bearing several different meanings. The first meaning is estoppel, where a plaintiff stands by while he or she sees the violation of his or rights in progress and takes no steps to interfere. I do not consider that there is any factual foundation for an estoppel in this case. In my view it was entirely reasonable for the Ministry to have waited for Mr McGuire to exhaust his appeal rights before it returned to the question of enforcement of the 2013 costs award and, without more, the delay between 10 March 2015 and December 2016 is not such as to give rise to any estoppel.
[90] Acquiescence may also refer to situations where a plaintiff, with full knowledge of his or her rights, refrains, over a long period, from exercising those rights, in circumstances where it can be inferred that he or she has effectively abandoned them (the authors of Equity and Trusts in New Zealand refer to this category of acquiescence as “waiver, affirmation, and release”). Again, I do not think there is any basis for an abuse of process argument on this interpretation of “acquiescence”. There is nothing on the facts here which could reasonably have led Mr McGuire to believe that the Ministry had abandoned its rights under the 2013 costs award.
[91] The third variety of acquiescence discussed by the authors Equity and Trusts in New Zealand is laches, which I have already addressed.
[92] Mr McGuire submitted that it would be unconscionable to allow the Ministry to proceed with adjudication proceeding based on the bankruptcy notice. I have
already dealt with two of the factors advanced by Mr McGuire in support of this argument, namely the delay before the bankruptcy notice was issued and the nature of the email correspondence between the parties, particularly in May of 2013. Mr McGuire’s third point related to the allegedly suspicious timing of the issue of the bankruptcy notice, after he had commenced the 2016 proceeding.
[93] On this point, I accept Mr Kinsler’s submission that there is no evidence which would support an inference of any improper attempt by the Crown to prevent Mr McGuire from advancing his case in the September 2016 proceeding. The reality of the matter is clear — Mr McGuire owed the Ministry an amount in excess of
$30,000, and when the bankruptcy notice was issued there was nothing preventing the Ministry from enforcing the 2013 costs award. Mr Kinsler accepts that the issue of the September 2016 proceeding was the catalyst which caused the Ministry to reopen the question of enforcement of the 2013 costs award, but the mere fact of the issue of the September 2016 proceeding could not have been enough to require the Ministry to stay its hand on enforcement, for months or possibly even years while Mr McGuire pursued the September 2016 proceeding. Put another way, if the Ministry was entitled to enforce the 2013 costs award in December 2016, it could not have been deprived of that right by the mere fact of Mr McGuire issuing a new proceeding against its Chief Executive. Something more would have been required.
[94] The failure of the strike-out application, and the Secretary’s decision to withdraw the application for security for costs, do not affect that conclusion. On the face of it, the withdrawal of the security for costs application followed advice from Mr McGuire that he could pay any costs which might be awarded against him. In that circumstance no inference can usefully be drawn from the withdrawal of the application. Similarly, the strike-out application and the decision of Cull J dismissing it do not assist Mr McGuire. The Secretary had the same right as any other litigant to ask the court to strike out part of a statement of claim which was considered to disclose no arguable cause of action, or was otherwise liable to be struck out.
[95] Mr McGuire refers to the close communication between the Ministry staff and those representing the Secretary in the September 2016 proceeding. There is
nothing in this. In my view it would be surprising, and unrealistic, to expect anything else. The Secretary is, after all, the Chief Executive of the Ministry, and I can see no reason why the Secretary would not be entitled to be fully briefed on any debt owed to the Ministry by Mr McGuire.
[96] No evidence has been put forward to suggest any basis for unconscionability. The Ministry was entitled to take such enforcement steps against Mr McGuire as it considered appropriate, without regard to the September 2016 proceeding. Mr McGuire owed the money to the Ministry, and he had not paid it. Absent some evidence of improper conduct of some sort by the Ministry, which has not been produced, Mr McGuire cannot justify further delay in making payment simply because he has issued a further proceeding against the Chief Executive of the Ministry.
[97] I conclude that Mr McGuire has failed to establish that he has any genuinely arguable case of abuse of process in the issue of the bankruptcy notice, by either laches or acquiescence (however the latter expression is applied), or on the basis of unconscionability.
[98] I accordingly conclude that Mr McGuire has not made out any basis for setting aside the bankruptcy notice. His application is dismissed accordingly.
[99] The Ministry is entitled to costs in the ordinary way. As I did not hear submissions at the hearing on costs, the parties may file memoranda if they cannot agree. Any memorandum for the Ministry is to be filed and served within fifteen working days of the date of this judgment. Any reply memorandum from Mr McGuire is to be filed within fifteen working days of his receipt of the Ministry’s memorandum.
Associate Judge Smith
Solicitor:
Meredith Connell, Wellington for the Judgment Creditor
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