Nightingale v James
[2018] NZHC 965
•7 May 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001810
[2018] NZHC 965
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of BRIDGET PILISITA MELEKOULA JAMES
BETWEEN
GEOFREY ALAN NIGHTINGALE and
LINDA MARIA NIGHTINGALE as trustees of the Bolton Trust
Judgment CreditorsAND
BRIDGET PILISITA MELEKOULA JAMES
Judgment Debtor
Hearing: 19 April 2018 Appearances:
P J Clark and B O’Callahan for Judgment Creditors Ms James, Judgment Debtor, self-represented
Judgment:
7 May 2018
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
This judgment was delivered by me at 3.00 pm on 7 May 2018 pursuant to Rule 11.5 of the High Court Rules
Solicitors:
Smith & Partners, Auckland
NIGHTINGALE v JAMES [2018] NZHC 965 [7 May 2018]
[1] On 23 November 2016, the District Court entered judgment against the judgment debtor, Ms James, on proceedings brought by the judgment creditors in respect of an agreement for sale and purchase of a property in Auckland. Judgment was entered in the sum of $60,000, together with interest, as damages for failure to pay the deposit under the agreement, $8,121.75 for lost interest on the unpaid portion of the settlement price, and $144.86 for rates paid on the property.
[2] By a judgment dated 6 March 2017, Ms James was ordered to pay costs to the judgment creditors in the sum of $31,372.50 and disbursements in the sum of
$4,186.82. The judgment is not under appeal, nor has the debtor applied to set it aside. It is a final judgment, entered after a trial.
[3] The judgment creditors apply to adjudicate Ms James bankrupt based on these two judgments. A bankruptcy notice served on Ms James did not result in any sum being paid under either of the judgments. Ms James opposes the making of an order for adjudication. She says that the judgment in the District Court was obtained by fraud as the copy of the agreement for sale and purchase on which the judgment creditors sued bear two sets of marks which appear to be the initials of her and her husband, but are not. She says that she and her husband did not sign, by way of acceptance, the counterclaim made by the judgment creditors as vendors at an increased price above their original offer. She says that these apparent initials were forgeries of her and her husband’s initials.
[4] I review, first, the approach of the Court to looking at liability for a debt, beyond the judgment on which a bankruptcy application is based. Then I review the facts called into issue by Ms James.
The law
[5] Section 36 of the Insolvency Act 2006 provides that the Court may, at its discretion, adjudicate a debtor bankrupt if the creditor has established the requirements set out in s 13. These requirements are that the debtor owes the creditor $1,000 or more, the debtor has committed an act of bankruptcy within a period of three months before the filing of the application, the debt is a certain amount, and the debt is payable either immediately or at a date in the future that is certain.
[6] An act of bankruptcy is defined in s 17. It is committed if a creditor has obtained a final judgment or order against the debtor, execution of that judgment or order has not been halted, the debtor has been served with a bankruptcy notice, and the debtor has not within 10 working days (in the case of a debtor served in New Zealand) either complied with the notice or satisfied the Court that he or she has a cross claim against the creditor.
[7] From this it will be seen that, provided an act of bankruptcy has been committed, the Court has jurisdiction to make an adjudication order, but it also has a discretion not to do so. This discretion is amplified in s 37 which provides that the Court may, at its discretion, refuse to adjudicate a debtor bankrupt if the creditor has not established the requirements set out in s 13, or the debtor is able to pay his or her debts, or if it is just and equitable that an order is not made, or if for any other reason the Court finds that an order should not be made.
[8] Before making an order it is necessary for the Court to be satisfied that the debt on which the bankruptcy notice was based has not been paid. Rule 24.20 of the High Court Rules provides that a certificate by the applicant creditor’s solicitor to the effect that, after having made due enquiries, the solicitor is satisfied that the debt remains unpaid may be accepted by the Court as sufficient prima facie evidence that the debt does in fact remain unpaid.
[9] During the course of hearing applications for adjudication, the Court is frequently informed of a challenge, by a debtor, to the underlying judgment on which the procedure is based. When a submission to this effect is made, the Court enquires from the debtor whether an appeal against the underlying judgment has been filed, or whether an application to set aside the judgment has been made. If neither of these steps has been taken and the debt remains paid, it is the usual practice of the Court either to adjourn the application to allow the underlying judgment to be challenged by way of appeal or application for rehearing, or to proceed to adjudication depending on the facts presented to the Court at the time. Generally the Court does not investigate whether the underlying judgment is sound, that being a matter which has already been finally determined between the debtor and the creditor. A decision on how to proceed
is made by way of exercise of the discretion given to the Court in ss 36 and 37.1 Section 42(2) of the Insolvency Act provides that if a debtor has appealed against a judgment or order underlying the bankruptcy notice and the appeal is still to be decided then the Court may halt the application for adjudication, or refuse it.
[10] In the present case, the way in which the Court would consider the case presented by Ms James is to regard it as a request that the Court exercise its discretion not to adjudicate her bankrupt.
[11] Before considering the facts of the present case I refer briefly to recent Australian authority.
[12] In Australia there is a line of authority to the effect that the Court may examine the alleged liability of a judgment creditor under a judgment, because although judgment has been entered by a Court on an earlier occasion, that judgment is inconclusive of liability for the debt.
[13] To understand the passages from these Australian judgments, it is necessary to refer first to relevant sections of the Bankruptcy Act 1996 (Cth). I start with s 52(1):
At the hearing of a creditor’s petition, the Court shall require proof of:
…
(c)The fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
[14] Sequestration is the word used in Australia as equivalent to adjudication in New Zealand.
[15] An applicant for sequestration must therefore prove that the debt or debts on which it relies for an order are still owing. This has been interpreted as being more than ensuring that there is a judgment and the judgment debt remains unpaid. It is also
1 Factors to be considered are summarised in Re Rabobank Australia Ltd ex parte Tootell [2013] NZHC 2975 and Re Epirosa HC Wellington B498/91 and B832/91, 6 March 1992. The list of factors identified in these cases is not exhaustive.
more than requiring the provision of a certificate, as required by r 24.20 of the High Court Rules. Cases to this effect include Corney v Brien,2 Commonwealth Bank of Australia v Jeans,3 and Wren v Mahoney, in which Barwick CJ said:4
The judgment is never conclusive in bankruptcy. … But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration … The Court’s discretion in my opinion is to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
[16] These judgments were referred to by Associate Judge Christiansen in Wilkins v Official Assignee.5 At that point his Honour had before him the decision of the Federal Court in Ramsay Healthcare Australia Pty Ltd v Compton, but after his Honour’s decision was released the High Court of Australia judgment in this case was released.6 It contains the following passages:
[54] In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as “res judicata” between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt; a creditor should not be able to make a person bankrupt on a debt which is not provable.
…
[68] For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication
2 Corney v Brien (1951) 84 CLR 343 (HCA).
3 Commonwealth Bank of Australia v Jeans [2005] FCA 978.
4 Wren v Mahoney [(1972) 126 CLR 212 (HCA) at 224.
5 Wilkins v Official Assignee [2016] NZHC 1742.
6 Ramsay Healthcare Australia Pty Ltd v Compton [2017] HCA 28, (2017) 345 ALR 534.
of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.
[17] The Court went on to note that while a Bankruptcy Court will not examine every judgment debt, and special circumstances must be established before it will do so, it will look with suspicion on consent judgments and default judgments. The Court said:7
As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment.
[18]The Court went on to direct that in the case then under consideration:8
… the Bankruptcy Court should proceed to investigate this question in order to decide whether it was open to it to make a sequestration order.
[19] It is clear from this judgment that a Bankruptcy Court in Australia will proceed to investigate liability for the claimed debt notwithstanding there being a judgment of another court, and that judgment is the basis of the application for bankruptcy. In New Zealand the relevant provisions of the Insolvency Act, summarised above, differ materially from s 52 of the Bankruptcy Act 1966 (Cth). The Court is not expressly required by the Act to require proof that the debt or debts on which the petitioning creditor relies is or are still owing. It is that requirement that has been interpreted as opening the way for a Bankruptcy Court to itself investigate liability for the claimed debt, notwithstanding there being a judgment of another court on which the bankruptcy process is brought. Whilst the Court in New Zealand must satisfy itself
7 At [70].
8 At [72].
the debt remains unpaid before it makes an order, there is no express requirement in those terms in the Act. Section 13 requires that the debtor owes the creditor over
$1,000. This issue may be satisfied in New Zealand by a certificate under r 24.20. It is clear, however, from ss 36 and 37 that the Court retains a discretion not to adjudicate. If an application for adjudication is opposed and evidence is led which calls into question the validity of the underlying judgment relied on to satisfy s 17(1)(a), the Court will consider exercising its discretion against making an order either under s 36, or on the basis that it is just and equitable not to make an order, s 37(c). The evidence may also establish another reason for not making an order, in terms of s 37(d). Thus in Baker v Westpac Banking Corporation the Court of Appeal said:9
It is proper for the court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest. A creditor who establishes the jurisdictional facts as set out in [s 17] is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. … In the end the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
[20] It is not the common practice of this Court to engage in an analysis of the correctness or otherwise of the underlying judgment. That said, an invariable practice, or decision in principle, excluding the prospect of so doing would fetter the discretion given to the Court by ss 36 and 37.
[21] In the end, therefore, although there are statutory differences between Commonwealth law and New Zealand law as I have outlined, the issue comes down to the same point. If it is made sufficiently clear to this Court that there is a sound reason to believe that there is a flaw in the underlying judgment, this Court will respond to it by giving time for reassessment of that judgment elsewhere, as I have noted, or by exercising the Court’s discretion not to make an adjudication order. This is because this Court has a duty to be satisfied that it is appropriate to make an adjudication order, and as that order would be based on a debt it is appropriate for this
9 Baker v Westpac Banking Corporation CA212/92, 13 July 1993.
Court to be satisfied that debt is properly owing. As the High Court of Australia said in Ramsay:10
… a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt; a creditor should not be able to make a person bankrupt on a debt which is not provable.
[22] The New Zealand legislative framework enables the Court to consider issues raised in relation to an underlying judgment and, if those issues are found to be of sufficient concern, to exercise its discretion accordingly. If a Court is not satisfied that it can form a firm view, it can afford time to a judgment debtor to take the matter up by way of an application for rehearing or appeal, as the case may be. But, because of the differences between the legislative provisions in Australia and New Zealand, this Court will not take the next step predicated in Ramsay and investigate the underlying judgment in the course of considering an application for adjudication. It will not embark upon an exercise akin to a retrial of the case which gave rise to the underlying judgment. Similarly, it will not engage in a process akin to an appeal. It will look at the underlying judgment to the extent that it needs to do so in order to assess the validity of a challenge to that judgment made by a judgment debtor. Then it will make a decision on whether to allow time for reconsideration of the judgment elsewhere, or to dismiss the application, or to proceed to adjudication. Beyond that it is not in my view necessary to lay down any more rigid basis on which the Court should approach this issue.
Factual issues raised by Ms James
[23] Ms James’ challenge to the judgment of the District Court is directed at the agreement for sale and purchase on which she and her husband were sued. The sequence of events was that they made an offer on a property at a certain price, and a counter offer was then made by the vendors. Ms James says that this counter offer was never accepted. During the course of preparation for trial, a copy of a contract was under consideration by both vendors and Mr and Ms James, on which the counter offer was not initialled by either Mr or Ms James. Then, when the real estate agency
10 At [54].
which conducted the transaction was joined as a party, another version of the contract was produced that did contain marks next to the counter offer which were said to be the initials of Mr and Ms James. Ms James adamantly maintains that these are not her initials, in particular, or those of her husband. She describes this document as “version 3” of the document, which, as she put it, did not surface until the real estate agency was joined. Rhetorically she asks “where this agreement had been all this time”, and implies that it is a forgery.
[24] Notwithstanding reference of the documents to two professional document examiners, Mrs James was unable to obtain evidence to present at trial which would support her contention. The reports came back with advice that each examination was inconclusive on whether the initials were those of Mr and Mrs James.
[25] Ms James’ ongoing challenge to the correctness of the District Court judgment is based on a wish to refer “version 3” to a fingerprint analyst to determine whether she has ever in fact touched this document. I am told that the document is contained in a folder within the records of the District Court. Mrs James says she has never touched this document and this would be established by a fingerprint analyst. On that basis she said she would prove that she did not sign “version 3”.
[26] Both the judgment of the District Court and a full transcript of cross- examination were produced by Ms James on this application. Mr O’Callahan, for the creditor, called as a witness Mr D L Boot, a senior document examiner for the New Zealand Police. Mr Boot had filed an affidavit and in supplementary evidence informed the Court either that “the initials on version 3, in question, were genuine, or they have been copied or simulated without anyone having left any evidence of that having occurred”. Mr Boot went on to say that:
If someone practised, then they could copy these and leave no evidence of it. But they would need to practise, it couldn’t be straight off the bat, but the reason that I can’t give any opinion for authorship is because I can’t exclude the possibility that someone could successfully copy those initials and leave no evidence.
[27] Mr Boot was cross-examined. Although he is not a fingerprint expert he told the Court he is familiar with the fact the fingerprints can be detected on paper using a
substance called Ninhydrin. He indicated that police handwriting experts routinely examine documents, and then hand them to fingerprint experts for testing with Ninhydrin, a procedure which then destroys the document. Mr Boot then informed the Court that it may be possible by that method to identify whether a person has touched the documents by their fingerprints, but the absence of fingerprints does not mean that they did not touch it. This is because that when a person touches a document that person does not necessarily leave fingerprints. Thus the Ninhydrin technique would not exclude Ms James having touched the document.
[28] This evidence was before the District Court. No application was made to that Court to have the document referred to a fingerprint expert for testing with Ninhydrin.
[29] It is clear from the judgment of the District Court that it exhaustively examined the evidence in relation to whether or not Ms James signed the counter offer. There was evidence before the Court from the real estate agent that, contrary to the evidence of Ms James, she had in fact signed the counter offer. The Judge accepted this evidence and rejected Ms James’ evidence as “simply not plausible”.
[30] It is clear from the judgment of the District Court that the question of whether or not Mr and Ms James signed the counter offer was squarely in issue, was the subject of extensive evidence, and was the subject of careful analysis by the District Court Judge. The judgment is not under appeal and there is no application to the Court to set it aside, nor is there an application for leave to appeal out of time. Even if this Court was satisfied that testing for fingerprinting may assist a court in deciding whether Ms James had ever touched “version 3”, that in itself would only be one further element in a substantial matrix of evidence because, of course, a document can be signed without fingerprints being placed on it. The document could be placed in front of a person who then signs it, touching it only with other parts of his or her signing hand. In any event, Ninhydrin testing would not establish that the document had not been touched by Ms James’ fingers.
[31] Further examination of the judgment is well outside the ambit of an enquiry this Court will make on an application of this kind. I am satisfied that the Court can and should proceed on the basis of a final judgment of the District Court.
[32] Ms James raised two other facts on which she asked the Court to exercise its discretion. The first is that she has lodged a complaint with the police, and that investigation remains extant. She indicated that she had not pursued the complaint, preferring instead to await the outcome of this case. Secondly, she indicated that she is a student, majoring in political studies, and would not be able to continue these studies if adjudicated bankrupt.
[33] In my view it is not certain that Ms James could not continue her studies, for financial reasons, should she be adjudicated bankrupt. No detailed analysis of her ability to receive student funding assistance was given to the Court. The complaint to the police is not a matter of any relevance as it would not be affected by the making of an adjudication order. Further, I am informed that other costs awarded on the District Court case remain outstanding.
[34] Weighing up all matters, I am not satisfied that a sound basis has been put before the Court for it to exercise its discretion not to adjudicate Ms James bankrupt. She has significant unsatisfied indebtedness pursuant to final orders of a court and informed me that giving further time for the judgment to be met would not assist. It seems clear that Mrs James is insolvent. The correct course is for adjudication to follow.
Outcome
[35]I adjudicate Ms James bankrupt.
[36] I order that she pay costs to the judgment creditor on a 2B basis together with disbursements fixed by the Registrar.
[37]The time of these orders is the time of release of this judgment by this Court.
J G Matthews Associate Judge
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