Minter Ellison Rudd Watts v Hampton
[2012] NZHC 1715
•20 July 2012
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2011-409-0002055 [2012] NZHC 1715
IN THE MATTER OF the bankruptcy of DAVID JOHN HAMPTON
BETWEEN MINTER ELLISON RUDD WATTS Judgment Creditor
ANDDAVID JOHN HAMPTON Judgment Debtor
Hearing: 28 May 2012
(Heard at Christchurch)
Appearances: D J Hampton (Debtor/Applicant) In Person
C A Levermore for Creditor/Respondent
Judgment: 20 July 2012
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to application to set aside bankruptcy notice]
Introduction
[1] This proceeding is yet another product of the litigation which has grown around Mr Hampton and his related entities (which I will refer to collectively as “Mr Hampton”) since they fell out with the Commissioner of Inland Revenue approximately 20 years ago.1
[2] Minter Ellison Rudd Watts (“Minter Ellison”) on 11 February 2010 obtained a judgment for $172,462.57 (plus interest and costs). They now have served a
bankruptcy notice on Mr Hampton.
1 Reference to my judgment in Chesterfields Preschools Ltd v Commissioner of Inland Revenue
(2011) 25 NZTC 20-092 at [2] provides details of some of that litigation.
MINTER ELLISON RUDD WATTS V HAMPTON HC CHCH CIV-2011-409-0002055 [20 July 2012]
The grounds of the application
[3] This judgment concerns Mr Hampton’s application for an order setting aside
the bankruptcy notice under s 24.10 High Court Rules.
[4] Mr Hampton says that the bankruptcy notice should be set aside for two reasons. These are:
(a) Mr Hampton has a cross-claim against Minter Ellison (s 17(1)(d) Insolvency Act 2006); and
(b)the Court in its discretion (reliance being placed on ss 37 and 38 of the Act) and pursuant to its inherent jurisdiction should set the notice aside because there is reason to believe that Mr Hampton will shortly receive quantification and payment of a costs judgment in his favour against the Commissioner of Inland Revenue.
Setting aside a bankruptcy notice – the principles
[5] Rule 24.10 provides:
Setting aside bankruptcy notice
(1) If an application to set aside a bankruptcy notice cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the time is treated as extended until the application has been determined.
(2) An act of bankruptcy is not committed by reason only of non- compliance with the notice until the application has been determined.
[6] Section 17(1)(a) of the Act provides:
17 Failure to comply with bankruptcy notice
(1) A debtor commits an act of bankruptcy if—
...
(d) the debtor has not, within the time limit specified in subsection (4), —
(i) complied with the requirements of the notice; or
(ii) satisfied the Court that he or she has a cross claim against the creditor.
...
[7] Both Mr Hampton and Ms Levermore adopted as the test for setting aside a bankruptcy notice the formulation of Cooke P in Sharma v ANZ Banking Group to which I return below.2
Factual background
[8] The background to Minter Ellison’s work for and judgment debt against Mr Hampton is set out in the judgment of Associate Judge Christiansen when summary judgment was granted on 11 February 2010.3
[9] Associate Judge Christiansen summarised the nature of Minter Ellison’s
claim thus:
[1] The plaintiff (MERW) seeks summary judgment upon its claim for legal services. The defendants engaged MERW to represent them in respect of two successful judicial review proceedings, and associated interlocutory applications, brought against the Commissioner of Inland Revenue (the Commissioner). Two separate contracts of retainer were entered into. The first encompassed the period March
2005 to May 2006 (the first retainer) and the second encompassed the period June 2007 to June 2009 (the second retainer).
[2] Eleven invoices were issued by MERW to the defendants between June 2008 and May 2009 for legal services provided under the second retainer. The present claim is for $172,462.57 being the balance owing on those unpaid invoices. All invoiced costs provided under the first retainer have been paid by the defendants.
[10] His Honour dealt with the background to Minter Ellison’s representation of
Mr Hampton from January 2005 to June 2006 in this way:
[4] Until December 2004 the defendants were represented by Buddle Findlay, barristers and solicitors (Buddle Findlay). Initially Buddle Findlay were engaged in settlement negotiations with the
2 Sharma v ANZ Banking Group (1992) 6 PRNZ 386 (CA).
3 See Minter Ellison Rudd Watts v Chesterfields Preschools Ltd HC Christchurch
CIV-2009-409-1700, 11 February 2010.
Commissioner “concerning a protracted tax dispute involving a range of historical issues”. An objection of complaint was made against the Commissioner following the Commissioner’s issue of a statutory demand. Ultimately Buddle Findlay prepared and filed an application for judicial review on behalf of the defendants. Mr Hampton states that because the defendants were unable to continue to fund the representation of Buddle Findlay he personally undertook the initial formal discovery and inspection of the Commissioner’s documents in November 2004.
[5] When on 13 December 2004 Buddle Findlay formally withdrew as solicitors on the record, the defendants instructed Mr Andrews in January 2005. At that time he was a partner at Palmer Chen, barristers and solicitors. Shortly afterwards Mr Andrews joined the partnership of MERW. MERW were instructed from March 2005 to May 2006 and from June 2007 to June 2009 in relation to two High Court judicial review proceedings. Each period of retainer was the subject of a separate contract of retainer.
[6] Mr Hampton states MERW withdrew its representation a month prior to the first judicial review hearing in July 2006 and did not represent the defendants in that hearing.
[11] Minter Ellison was subsequently re-engaged by Mr Hampton. The timing and nature of Minter Ellison’s re-engagement was summarised by Associate Judge Christiansen in this way:
[41] MERW was reengaged by the defendants in June 2007. Mr Andrews deposes that initially the engagement was for the limited purpose of determining whether a settlement with the Commissioner could be reached in light of the defendants’ success in their initial review proceedings. Subsequently MERW agreed to act for the defendants in their further judicial review proceedings against the Commissioner, and related proceedings to set aside freezing orders that the Commissioner had obtained. Although by then historical invoices were still unpaid, MERW formed the view, based on the merits of the defendants’ position, that there was a realistic prospect that the further proceedings would free up funds for payment of their costs.
[42] In the outcome of Fogarty J’s judgment of 31 October 2007 and as a result of other developments including the mortgagee sale of a number of the defendants’ properties funds were realised and the defendants settled all of MERW’s unpaid invoices in early 2008, and advanced some further funds towards ongoing legal costs.
[43] Following the re-enactment of the Lawyers and Conveyances [sic] Act 2006 and its coming into force on 1 August 2008 MERW advised the defendants of the terms of its retainer with them on 5
August 2008.
[44] MERW’s invoice for June 2008 was not settled in full and thereafter
all invoices went unpaid. Nevertheless they agreed to continue to
represent the defendants through to the hearing of the second judicial review proceedings in late October 2008. They say they agreed to do so on the basis that payment would be postponed until those proceedings were determined by the High Court. The nature of this arrangement was disclosed to the Court.
[45] The second judicial review proceeding was heard on 21 and 22
October 2008. By his judgment dated 25 November 2008 Fogarty J
essentially upheld the defendants’ challenges to the Commissioner’s
actions on all grounds.
[46] In the outcome costs were sought against the Commissioner. The Commissioner sought a stay of execution pending appeal. The hearing of those applications was initially set down for 22 April
2009.
[47] Earlier on 23 March 2009 MERW advised the defendants they would cease acting after the costs hearing unless their invoices were paid. Mr Hampton responded on 24 March 2009 acknowledging that the costs award would be used to pay MERW’s fees.
[12] Subsequently Minter Ellison had difficulties in obtaining payment of its fees. The Associate Judge summarised that period thus:
[48] In his costs judgment of 1 May 2009 Fogarty J made awards of costs against the Commissioner (each on an uplifted basis) in the sums of
$88,818.78 including disbursements in respect of the second review proceeding and $97,920.00 (plus disbursements to be fixed at 80 %)
in respect of the first review proceeding. In his judgment Fogarty J made several observations regarding MERW’s representation of the defendants. His Honour noted that MERW reasonably was unwillingto continue to act unless its costs were met by the costs award.
[49] Despite continuing requests for payment none was forthcoming in the period June 2008 and May 2009. The defendants have not authorised MERW to take steps to seek payment from the Commissioner. Mr Andrews deposes and it has not been disputed that Ms Sisson was willing to allow MERW to write to Crown Law seeking payment by the Commissioner of the legal costs and that Ms Sisson on several occasions orally acknowledged that the defendants were liable for outstanding legal fees. Despite this Mr Hampton was not prepared to let MERW take that step to recover the costs from the Crown.
[50] Mr Andrews deposes that as a consequence of the defendants [sic] refusal to pay the outstanding invoices he concluded that MERW’s retainer had been effectively terminated and because the defendants would not themselves take any steps to remove MERW as solicitors on the record, it was necessary for them to apply to the Court and Court of Appeal to be removed from the record. Those applications were granted in June 2009.
Minter Ellison’s summary judgment
The nature of Minter Ellison’s claim
[13] The summary judgment application dealt with in Associate Judge Christiansen’s judgment of 11 February 2010 thus concerned the fees charged by Minter Ellison during the second retainer (June 2007 to May 2009).
Adjudication of issues - generally
[14] In giving judgment for Minter Ellison, Associate Judge Christiansen referred to the general principles relating to summary judgment.4 His Honour also referred particularly to the distinction between set-off and counterclaim.5
[15] His Honour then reviewed the case for the defendants in opposition. He discussed the defendants’ allegations of negligence made against Minter Ellison in relation to the discharge of its professional obligations. These allegations related to the course of conducting discovery in 2005; the approach to legal aid in 2007 and conduct in preparing an affidavit in relation to the second judicial review proceeding in 2007.
[16] His Honour also discussed and disposed of an allegation by the defendants that Minter Ellison had, in relation to the fees which were the subject of a summary judgment application, made unreasonable charges. His Honour disposed of that allegation on the facts.
[17] His Honour found that the allegations of breach of care in relation to legal aid and the preparation of affidavits failed on the evidence.
4 At [18].
5 At [19] - [22].
Adjudication of negligence issues in particular
[18] His Honour found also that the defendants’ cross-claim, alleging breach of care and discovery, did not raise an arguable defence for two reasons (thereby leading to judgment for the plaintiff).
[19] The first reason was the discrete nature of the cross-claims. The Associate
Judge said:
[60] Now it appears that the claims of negligence seek to challenge the validity of fee invoices already paid in full under the terms of the first retainer. But, it is clear that these claims do not arise in the context of a set off but rather as a counterclaim. They are discrete claims and if they are to be pursued they ought to be the subject of a separate challenge and are not properly brought upon MERW’s present claim which is for the balance of fees owing under the second retainer i.e. for services in connection with the second judicial review and other matters between June 2007 and June 2009.
[20] The second reason was the lack of substantiation (other than by speculation and suspicion), lack of precision and lack of consistency with the contemporary written records. His Honour said:
[61] Also the claims of negligence and alleged losses are not verified by evidence of anything more than speculation and suspicion. They lack precision, are unsupported by independent material and quite plainly are inconsistent with contemporary written records.
[21] Thus the central negligence allegation made by the defendants failed for those two reasons and led to summary judgment for the same reasons, namely lack of substantiation and credibility and the discrete nature of the discovery allegations as a counterclaim.
Mr Hampton’s “counterclaim”
[22] Mr Hampton (and his related entities) have sought in this proceeding to file a “statement of counterclaim” dated 28 October 2011. It is, as Minter Ellison has correctly asserted, a misconceived document. Any claim of the nature filed would require a separate proceeding. So far as the Court is aware, no separate proceeding has been issued either in this Court or in the District Court. So far as the Court is
aware no separate proceeding has been subsequently pursued. It therefore does not fall to be considered as a filed claim, but I have treated it for the purposes of the present hearing, and arguments, as indicating the nature of a cross-claim which Mr Hampton wishes to raise as a ground for setting aside the bankruptcy notice.
[23] The “statement of counterclaim” runs to 50 pages. I summarise it. Mr Hampton asserts breach of Minter Ellison’s duty of care between January 2005 and June 2007. He asserts that Minter Ellison failed to detect “critical deficiencies” in the Commissioner’s discovery. He says by reason of that negligence on the part of Minter Ellison, he and his associated entities suffered loss and damage. The loss and damage is pleaded in paragraphs 163 and 164 of the “statement of counterclaim” in this way:
By reason, or as a consequence, of some or all of the conduct of the defendants pleaded at paragraphs 75 to 97, the plaintiffs suffered losses including:
(a) significant legal and litigation costs, in a sum not less than
$278,000.00;
(b) lost profits over the years from 2005 to 2006;
(c) lost value as a result of closure of the plaintiffs’ businesses;
(d) loss of future profits of businesses as a result of the closure of the
plaintiffs’ businesses;
(e) damage to professional and business reputation; (f) stress, humiliation and loss of enjoyment of life.
Full particulars of the plaintiffs’ losses will be provided to MERW and the
Court after discovery and inspection and prior to trial.
[24] There is no suggestion that any further particulars of Mr Hampton’s alleged
losses have been provided to Minter Ellison.
Associate Judge Christiansen’s detailed reasoning
[25] In his summary judgment, Associate Judge Christiansen set out detail of the allegations of negligence as to discovery as made by Mr Hampton.6 The period and
the subject matter covered by the discovery negligence allegations are substantially the same as in this proceeding.
[26] His Honour then summarised in some detail the case for the defendants in opposition on the alleged failure to undertake discovery.7
[27] His Honour then, under a heading “Consideration and Reasoning”8 set out a detailed consideration of the discovery negligence allegation.
[28] This discussion led directly to his Honour’s conclusion that (in addition to the conclusion that the discovery negligence allegation failed because it was not a
discrete claim) it failed also because:
The claims of negligence were not verified by evidence (other than
speculation and suspicion);
The alleged losses were not verified by evidence (other than speculation
and suspicion);
All claims lacked precision and were unsupported by independent
material; and
All claims were quite plainly inconsistent with contemporary written
records.
The relationship between the summary judgment hearing and this hearing
[29] In the hearing of the present application, Mr Hampton by reference to the “Statement of Counterclaim” developed oral submissions as to the degree of precision with which his counterclaim is now formulated. He also submitted that the pleaded headings of damage should be viewed as satisfactorily precise given that the statement of counterclaim contains earlier paragraphs recording the impact of
seizure notices issued by the Commissioner in relation to the “businesses of the
7 At [24] – [33].
[Hampton interests] being [mortally crippled]” and as to the reputations of the
[Hampton interests] being destroyed.
[30] Mr Hampton did not seek to address that part of what Associate Judge Christiansen found to be a further difficulty with any counterclaim, namely that the allegations of negligence by Minter Ellison were “plainly inconsistent with contemporary written records”. Those records, at least, speak for themselves. His Honour cited numerous passages from written statements made by Mr Hampton recognising such matters as “very high standards of conduct and intellectual
craftsmanship that Mr Andrews has brought to this dispute over the years.”9
[31] In short, the factual basis of claims relied upon remains essentially the same as it was before Associate Judge Christiansen. There is now a more detailed statement of allegations (in the form of the “statement of counterclaim”). There remains a lack of any proper explanation or analysis of causation and of damages. It is to be remembered that the Court is dealing in 2012 with matters which Mr Hampton has had six years to pursue. (I measure that by reference to the tenor of Mr Hampton’s allegations which is that Minter Ellison, in the period between January
2005 and June 2007, should have acted on his stated concerns as to the Commissioner’s discovery in some way other than they did). Measuring the time from the date of summary judgment, Mr Hampton had a full two years to pursue any claim for damages between the summary judgment and this hearing.
The legal effect of the existing finding
[32] Summary judgment was entered for Minter Ellison against Mr Hampton and his related entities on 11 February 2010. That judgment has not been the subject of any successful appeal.
[33] To reach his judgment, which he did on alternative grounds, the Associate Judge found that the defendants could not point to an arguable cross-claim and that such cross-claim as was asserted was not truly a set-off and therefore could not be set up against the Minter Ellison claim.
[34] It is on the former conclusion that I now focus.
[35] The summary judgment was a final judicial decision. The finding that the defendants had no arguable defence (on the basis asserted by the defendants) was a central question to be determined and one (of two alternatives) on which the judgment turned.
[36] The principle upon which the doctrines of res judicata and of issue estoppel turns is that stated by Lord Maugham LC in New Brunswick Railway Co. v British & French Trust Corporation Ltd:10
If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them ....
[37] Halsbury’s Laws of England provides this explanation of “Issue estoppel; in general”:
Issue estoppel; in general
Issue estoppel means that a party is precluded from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him. Even if the objects of the first and second claims or actions are different, the finding on a matter which came directly in issue in the first claim or action, provided it is embodied in a judicial decision that is final, is conclusive in a second claim or action between the same parties and their privies. Issue estoppel will only arise where it is the same issue which a party is seeking to re-litigate. This principle applies whether the point involved in the earlier decision, and as to which the parties are estopped, is one of fact or one of law, or one of mixed fact and law.11
[38] Paul A McDermott in his text Res Judicata and Double Jeopardy12 refers to the judgment of the Irish High Court in Premier Dairies v Doyle13 as a leading case on the circumstances in which an interlocutory ruling can give rise to an estoppel. In
Premier Dairies v Doyle Kinlen J, in the High Court, adopted Lord Maugham’s
10 New Brunswick Railway Company v British & French Trust Corporation Ltd [1939] AC 1 (HL)
at 20.
11 Halsbury’s Laws of England Civil Procedure (online ed) at [1179].
12 Paul A McDermott Res Judicata and Double Jeopardy (Butterworths, Dublin, 1999) at [4.13].
13 Premier Dairies v Doyle [1996] 1 IR 37 (HC), affirmed (on other grounds) [1996] 1 IR 37 (SC).
formulation in the New Brunswick Railway case. Commenting on the effect of that approach, Paul McDermott adds:14
Any new legal submissions that the defendants now had to make should have been raised on appeal from the first order.
[39] By reference to New Zealand authority the authors of Laws of New Zealand15
refer to issue estoppel, in relation to interlocutory judgments, in this way:
It is possible, although unusual, for issue estoppel to arise in relation to an interlocutory judgment. The ultimate question is concerned not so much with the character of the earlier decision, that is, whether it should be regarded as final or interlocutory, but rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the particular issue which one of the parties now wishes to raise.
[40] The authority referred to for the LONZ commentary is Joseph Lynch Land
Co Ltd v Lynch.16 Tipping J, delivering the judgment of the Court of Appeal stated:
In our judgment the ultimate question is concerned not so much with the character of the earlier decision, ie whether it should be regarded as final or interlocutory. The question is rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise.17
The issues raised by Mr Hampton in this case and in the summary judgment case
[41] Mr Hampton, to have Minter Ellison’s bankruptcy notice set aside, invokes s
17(1)(d)(ii) Insolvency Act 2006. In other words, Mr Hampton asserts that the judgment debtors are able to satisfy the Court that they have a cross-claim against Minter Ellison. Minter Ellison opposes the application on a number of grounds, including by reason of an issue estoppel arising from the summary judgment.
[42] Both Mr Hampton and Ms Levermore adopted as the applicable test for setting aside a bankruptcy notice the formulation of Cooke P in Sharma v ANZ
14 Ibid.
15 Laws of New Zealand Estoppel (online ed) at [20].
16 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA).
17 Ibid, at 43.
Banking Group.18 Referring to the judgment of Tompkins J appealed from, his
Honour stated:19
The Judge held that, as to the appellant's claim based on the execution, it did not satisfy s 19(1)(d) in that it was not in his view a genuine triable cross- demand. That is the criterion laid down or applied in a line of authorities: Re a Debtor [1963] 1 All ER 58, 87 per Lord Denning MR; Thomasen v Nigro unreported, 19 July 1978, CA124/76; and Clark v UDC Finance Ltd [1985]
2 NZLR 636 per Casey J. We accept that this is the proper criterion and that the words "genuine" and "triable" require the debtor to demonstrate that he
has a claim of true substance which he genuinely proposes to pursue.
[43] In a summary judgment context, being that visited by these parties in 2010, it was for Minter Ellison to satisfy the Court in terms of r 12.2(1) that Mr Hampton and his related entities did not have a defence to the claim for judgment on the legal costs. In that context, Minter Ellison had to show, as Somers J put it in Pemberton v
Chappell,20 that there was “an absence of any real question to be tried”.
[44] It is clear from the summary judgment of Associate Judge Christiansen, especially at [61], that his Honour found in relation to the negligent discovery cross- claim that it was not a claim of true substance. For that reason (and the reasons considered in relation to the other defences) the defendants had no arguable defences to the claims.
[45] Mr Hampton took no steps in the period after the summary judgment to pursue as a claim what he had unsuccessfully asserted as a cross-claim to Minter Ellison’s summary judgment application. The bankruptcy notice, which Minter Ellison wishes to rely upon, follows as a logical and usual step from the debtor’s failure to satisfy the judgment. The Court assesses the arguability of a debtor’s asserted defence in the summary judgment proceeding and on a setting aside application upon directly parallel considerations. In answering the Court of Appeal’s question as formulated in Joseph Lynch, it is reasonable in the circumstances to regard the earlier decision as a final determination of the issue which Mr Hampton wishes to raise once again – whether Mr Hampton had an arguable claim. That issue
was determined, against Mr Hampton. If he now wishes to pursue a stand-alone
18 Sharma v ANZ Banking Group (1992) 6 PRNZ 386 (CA).
19 At 389.
20 Pemberton v Chappell [1987] 1 NZLR 1 (CA).
claim independently of this proceeding by issuing a claim (rather than by seeking to defeat his creditor’s enforcement in a summary context) he has that entitlement – what would be unreasonable is if the Court were to allow him to revisit the arguability issue in the context of the creditor’s enforcement of the judgment which was obtained through Minter Ellison satisfying the Court that Mr Hampton’s cross- claim was not arguable.
[46] The overlapping nature of the Court’s task in these two jurisdictions – summary judgment and setting aside of bankruptcy notices – is evident in the consistent application of foundation authorities for considering cross-claims in both jurisdictions. The consideration of whether a genuine dispute of substance has been raised is repeatedly sourced back in New Zealand and elsewhere to Lord Diplock’s
formulation in Eng Mee Yong v Letchumanan.21 There is a consistency of approach
between the summary judgment and bankruptcy jurisdictions. It is reflected in cases in the summary judgment context – beginning with the adoption by Somers J of Lord Diplock’s observation in Eng Mee Yong in Pemberton v Chappell,22 still arguably the leading case in this area. It is equally reflected in cases in the bankruptcy jurisdiction, including in the judgment by Heath J in Balzat v Zhang23 where his Honour also applied Lord Diplock’s formulation and concluded that he was not satisfied that Mr Balzat had a genuine, triable claim.24 The approach which the Court takes to testing the plausibility of a suggested defence or cross-claim is consistent in both jurisdictions (or “cognate fields” as the Court of Appeal described them in United Homes (1988) Ltd v Workman.)25
[47] The issue now before the Court has been previously determined as between these same parties through the summary judgment proceeding. Mr Hampton and his related entities were found not to have a claim of true substance. That is a finding
that reasonably should apply, as a matter of issue estoppel, to the present proceeding.
21 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
22 Pemberton v Chappell [1987] 1 NZLR 1 (CA) per Somers J at 4.
23 Re Balzat ex parte Zhang HC Auckland CIV-2008-404-6062, 22 September 2009, at [80], [88].
24 Ibid.
25 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA) at [34].
[48] For this reason, the position adopted by Minter Ellison in its notice of opposition, namely that issue estoppel arises, is correct.
[49] Mr Hampton, in his written submissions, had developed (in relation to Associate Judge Christiansen’s alternative finding as to the unavailability of the cross-claim in a summary judgment context) submissions as to res judicata and issue estoppel. It is unnecessary for me given the conclusions I have reached to consider in detail the alternative arguments developed by Mr Hampton and Ms Levermore. One of the authorities relied on by Mr Hampton, however, summarises accurately some of the rationale which leads courts throughout the Commonwealth jurisdictions to apply doctrines of issue estoppel and res judicata. The Supreme Court of Canada
in Danyluk v Ainsworth Technologies Inc26 said:
Duplicative litigation, potential inconsistent results, undue costs, and inconclusive proceedings are to be avoided.
[50] That is the approach which should guide the Court in this case. Mr Hampton had his opportunity in the summary judgment application to point to a cross-claim of substance. The Court found that he had not done so. The Court was satisfied there was no cross-claim of substance. That the Court held that a second ground existed for proceeding to summary judgment is immaterial.
[51] I therefore conclude that Mr Hampton cannot satisfy the Court that he has a cross-claim against Minter Ellison. In relation to its judgment debt Minter Ellison should be free to pursue enforcement without duplicated and repeated litigation over whether Mr Hampton passes the threshold test for a cross-claim of substance. The creditor’s rights of enforcement should not be held up. Mr Hampton is free to pursue an independent claim if he sees fit.
Alternative submissions
[52] By reason of the conclusions already reached, it is unnecessary to explore an alternative argument on which I heard submissions. It was Ms Levermore’s
submission for Minter Ellison that Mr Hampton could have “set up” any arguable
26 Danyluk v Ainsworth Technologies Inc [2001] 2 SCR 460 at 473.
cross-claim in the summary judgment proceeding. She submits that Mr Hampton is therefore precluded by s 17(7)(b) of the Insolvency Act from relying upon the cross- claim as a ground of setting aside the bankruptcy notice.
[53] Mr Hampton made submissions which drew a distinction between the 1967
Act and the terminology of the 2006 Act, which refers to a cross-demand which:
...the debtor could not use as a defence in the action or proceedings in which the judgment or the order ... was obtained.
However, s 19 of the 1967 Act referred to a defence which the debtor could not “set up” in the relevant action. Mr Hampton developed submissions that authorities relied on by Ms Levermore, such as Sharma v ANZ Banking Group,27 are no longer directly applicable on this point as Parliament’s decision to replace the words “set up” with “use” will make a material difference in some fact situations.
[54] Given my determination for other reasons, I do not embark on a consideration as to whether the changed wording alters the principles in this area. Consideration of such an issue should occur in a case where the outcome turns on it.
Residual discretion
[55] Mr Hampton submitted, by reference to ss 37 and 38 of the Act, that I should exercise a discretion in his favour. There is reason to believe he will shortly receive quantification and payment of a costs judgment in his favour against the Commissioner of Inland Revenue.28
[56] Mr Hampton indicated that in the event the sum he receives from the Commissioner of Inland Revenue is sufficient to discharge his judgment debt to Minter Ellison, it is his intention to clear the judgment debt from that source and to not pursue his cross-claim. Understandably, Ms Levermore has suggested that such a position seriously undermines the credibility of Mr Hampton’s assertions that he
has a tenable cross-claim. I recognise some force in Ms Levermore’s submission but
27 Sharma v ANZ Banking Group (1992) 6 PRNZ 386 (CA).
28 CIV-2008-409-000995 – Chesterfields Preschool Ltd & Ors v Commissioner of Inland Revenue
& Ors.
having regard to my earlier conclusion it is unnecessary that anything in this decision relating to the fundamental right of either party turns on that point.
[57] Mr Hampton nevertheless invites the Court to consider the prospect of a pending satisfaction of Minter Ellison’s judgment by reason of a payment to be received from a third party. He asks the Court through an exercise of a discretion to set aside a bankruptcy notice notwithstanding he has failed to satisfy the grounds for setting aside.
[58] In Re Wise,29 Master Kennedy-Grant concluded by exhaustive reference to the authorities that in relation to the setting aside of a bankruptcy notice:30
(a) The Court may, in its inherent jurisdiction, grant relief to debtors; (b) The jurisdiction may be exercised where -
(i)There is a procedural defect in the obtaining of the judgment on which the judgment debt is based and/or
(ii)There are arguable grounds of defence to the claim on which the judgment was based.
His Honour reserved the point as to whether the grounds on which the inherent jurisdiction may be exercised extend to other circumstances.
[59] The facts of Re Wise were very different to the facts of this case. In Re Wise the debtors did not receive notice of the District Court hearing and were not represented at it. There was no actual opportunity for them to present their grounds of defence at the hearing. In this case, Mr Hampton not only appeared at the District Court hearing but also made submissions specifically as to the cross-claim on which
he now seeks to rely once again.
29 Re Wise HC Auckland B227/95, B228/95, 21 June 1995.
30 Ibid, at 6.
[60] A debtor’s reliance upon a cross-claim in response to a bankruptcy notice is specifically dealt with by s 17 of the Act. The effect of s 17(1)(d)(ii) (and the case law in relation to it) is that, notwithstanding that a debtor may wish to assert a cross- claim, the debtor is deemed to have committed an act of bankruptcy if he or she is unable to satisfy the Court that he or she has a genuinely triable cross-claim against the creditor (with the cross-claim meeting the requirements of s 17(1)(7)). I adopt
with respect the reasoning of Associate Judge Faire in Saker v Blackler31 – as the Act
provides the express ground for setting aside a bankruptcy notice, the concept of resorting to the inherent jurisdiction is contradicted.
[61] I therefore do not consider that the inherent jurisdiction is available to assist the debtor in this case. Even had it been, the circumstances of this case in which Mr Hampton previously argued his cross-claim at the summary judgment hearing, does not fit within the concept of cases such as Re Wise where something may have gone wrong with the process by which judgment was obtained.
Time to meet the bankruptcy notice
[62] By r 24.10(1) High Court Rules the time specified in the bankruptcy notice is treated as extended until this setting aside application is determined. The Court must now specify a new date by which the bankruptcy notice shall be complied with. That extension should be a reasonable period having regard to all the facts of the case and particular regard to the 10 working day period (for service within New Zealand) required to be stated in a bankruptcy notice under the High Court Rules.
[63] In this case I have some regard to what appears to be the imminent availability to Mr Hampton of significant funds which may enable him to meet the judgment debt.
[64] The enquiries which I have made of the Registrar indicate that a judgment on the costs entitlement which Mr Hampton has against the Commissioner of Inland Revenue has been delivered to the parties but is now the subject of recall for
amendment of a calculation. The quantification judgment has therefore not been
31 Re Saker ex parte Blackler HC Wellington CIV-2008-485-000124, 26 May 2008 at [26].
sealed. I accordingly take it that Mr Hampton and his co-plaintiffs in that proceeding have not been able to obtain payment of the costs, or at least the costs initially awarded. I am advised by the Registrar that additional submissions in relation to the recall of the costs judgment are to be concluded by 6 August 2012. Assuming that a judgment in its final form is to be delivered shortly thereafter the access which Mr Hampton will have to those funds is not likely to be before mid- August.
[65] Given the date of this judgment, the order which I will make as to the date for compliance with the bankruptcy notice is to identify the date which I consider most appropriate in the circumstances.
Costs
[66] Costs must follow the event. I do not consider there is any reason to depart from the 2B scale.
Orders
[67] I order:
(a) The judgment debtor’s application to set aside the bankruptcy notice
in this proceeding is dismissed.
(b)There is an order extending time for compliance with the bankruptcy notice to 20 August 2012.
(c) The judgment debtor is to pay the costs of the setting aside application on a 2B basis together with disbursements to be fixed by the Registrar.
Solicitors:
Mr D J Hampton , Edgeware Law Centre, PO Box 21-319, Christchurch 8143
Minter Ellison Rudd Watts, PO Box 2793, Wellington
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