Norfolk Financial Management Limited v King

[2014] NZHC 2051

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-001192 [2014] NZHC 2051

IN THE MATTER	of the Insolvency Act 2006
AND
IN THE MATTER	of the bankruptcy of PAUL ANTHONY KING
BETWEEN	NORFOLK FINANCIAL MANAGEMENT LIMITED Judgment Creditor
AND	PAUL ANTHONY KING Judgment Debtor

Hearing:	25 August 2014
Appearances:	M R Bendall for Judgment Creditor P A King, Judgement Debtor, appears in person
Judgment:	28 August 2014

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]     Norfolk Financial Management Limited (Norfolk) applies for an order adjudicating Mr King bankrupt.  It says that he owes Norfolk $43,405.53 comprising mainly the sum of $41,578.13 which Mr King was ordered by this Court to pay to Norfolk by way of costs, on 5 March 2013.   The balance of the sum claimed represents costs sought on filing this application.

[2]      Mr King opposes the making of this order.   He has not filed a notice of opposition, but seems to rely on an application he made to set aside a bankruptcy notice on 12 May 2014, and an affidavit he swore in support of that application.

Both pre-date the application now before the Court.

NORFOLK FINANCIAL MANAGEMENT LTD v P A KING [2014] NZHC 2051 [28 August 2014]

[3]      On that basis alone, if Norfolk has established in evidence the requirements for an order of adjudication, an order could be made.  However, although this point was made by Mr Bendall, I am prepared to consider Mr King’s argument as though a formal opposition had been filed, for three reasons.   First, Mr King is self- represented.  Although he has considerable familiarity with court processes, he may have thought that the documents filed as recently as May were sufficient for the purposes of opposing Norfolk’s application.   This proceeding has a history of substituted creditors, as recounted in the judgment I issued on 15 May 2014.

[4]      Secondly, in making timetable directions to hear this application (Minutes of

10 July 2014 and 28 July 2014) the Court may have inadvertently led Mr King to believe that it was not necessary for him to file any further formal opposition to the application.

[5]      Thirdly, in the circumstances of this case, I do not consider there to be any prejudice to Norfolk in allowing Mr King to argue his position.

[6]      In the same vein, Mr King breached the directions set out in paragraph [9] of the Minute of the Court dated 10 July.  He did not file written submissions at all, let alone by the time directed.   I raised this with Mr King at the beginning of the hearing, indicating to him that the Court would be entitled to proceed to hear the application without hearing from him.  He gave as his reason for not complying with the Court direction that every time he files anything Norfolk files something else. That is not a sufficient reason for breaching a Court direction, but I decided that I would, in this instance, hear him in opposition to the application.  Mr King must be under no illusion that the prospect of his being heard on any future matter if he has not filed the required  formal court documents,  and complied with directions, is extremely dim.

[7]      As  recorded  in  paragraph  [1]  of  the  judgment  of  15  May  2014,  this proceeding commenced with the issue of a bankruptcy notice against Mr King by Norfolk, with which he did not comply.   The bankruptcy notice was based on a sealed order of the Court dated 15 November 2012 by which Mr King was ordered to

pay to Norfolk a sum exceeding $10,000 by way of costs on the striking out of a claim he had made against Norfolk, and a Mr J L Porus.

[8]      In paragraphs [15] to [29] the Court canvassed the issues raised by Mr King at that time, and made findings in relation to them which led to the application to set aside the bankruptcy notice being dismissed.1   In essence, Mr King maintained that he had a cross claim against Norfolk, but the Court found that this was not substantiated.   I refer to it in the present context because the argument Mr King advances on the present application largely mirrors the submissions he made on that application, and raises also the issues which were raised by him in his proceeding against Norfolk and Mr Porus, which was struck out.

[9]      It follows, therefore, that an act of bankruptcy was committed when Mr King failed to comply with the bankruptcy notice, and in this circumstance the Court may adjudicate him bankrupt under the Insolvency Act 2006.  It is established in evidence that Mr King has not made an actual payment to Norfolk of any part of either of the sums which he has been ordered by the Court.  Unless Mr King can establish that he has paid the sums owing by another means, or has a cross claim against Norfolk,

Norfolk has established the requirements for the making of an order of adjudication.2

[10]     Mr King’s opposition to this application stems from his view of Norfolk’s

actions in relation to his loan.  There is no dispute that he received an advance of

$331,800 late in 2009, nor that apart from one payment of $2,300 he did not pay any interest on the loan until it was repaid from the proceeds of sale of the house over which it was secured, as a result of a mortgagee sale by Norfolk.  Mr King’s position is based on his assertion that Norfolk is not entitled to charge interest, nor to recover legal fees or other payments made in relation to the secured property pursuant to the mortgage, because it has not complied with its disclosure obligations under the Credit Contracts & Consumer Finance Act 2003.

[11]     As noted in the judgment of 14 November 2013, Mr King has raised these arguments before: see paragraphs [23] to [27] of the judgment.  As noted already,

1      Judgment dated 14 November 2013.

2      Sections 13 and 17, Insolvency Act 2006.

they were also the subject of the proceedings by Mr King in this Court (and later the Court of Appeal) which were struck out, leading to the costs order which was the foundation of the bankruptcy notice.  Mr King says, however, that there is now new evidence before the Court to support the position he takes.

[12]     In this respect Mr King relies on a summary of the history of his account which was provided to him on 5 August 2014 by Norfolk.  This document contains an entry dated 22 March 2011 by which Norfolk records payment of legal costs to Glaister Ennor, solicitors, of $78,221.27.  The note then states that this payment has been capitalised into Mr King’s loan, leading to a new loan balance of $410,605.75. This is a charge which Mr King says Norfolk was not entitled to debit to his loan account  as  the  disclosure  requirements  of  the  CCCFA had  not  been  met.    The proposition Mr King draws from this alleged non-compliance with the CCCFA is that there is a credit in the stated sum available to him, in the trust account of Norfolk, as he put it, which he is entitled to set off against the sums he has been ordered by this Court to pay by way of costs.

[13]     That is not correct. As Mr Bendall accurately says, if it can be shown that the legal fees ought not to have been charged to his loan account, the consequence is that the debit would have been credited back to the loan account and an adjustment made to accrued interest.  There would not under any circumstance be a cash sum sitting either at Norfolk or, for that matter, at Glaister Ennor on which he could draw or which he could then seek to apply against sums owing to Norfolk.

[14]     This issue has already been dealt with in the judgment dated 14 November

2013. At paragraphs [27] and [28] the Court said:

[27]  The evidence in support of this assertion was at best sketchy, consisting principally of observations about legal fees, interest and other expenses which, were such a claim successful, would be cancelled out under the provisions of s 89 of the Act.   Mr King did not present to the Court any semblance of a clear and logically ordered basis on which he might mount such a claim.  Rather, his observations were discursive both in their content, and in identifying who is said to be responsible for which of the assorted wrongs Mr King maintains have occurred.

[28]   Secondly, and in any event, even if he were successful in such a claim, the remedy would be a credit against the charges that are presently debited to him in the account for the proceeds of the mortgagee sale, and would not

offset any sum beyond that – in particular, they would not offset the sum owing under the court order in issue in this case.

[15]     Apart from the reference to Glaister Ennor fees in Norfolk’s record of the loan account, the position remains the same now.   Mr King’s assertions that he is entitled to relief under s 89 of the CCCFA is not established, nor is it the subject of any current proceeding.  Although Mr King says that he has outstanding proceedings before the Real Estate Agents Disciplinary Tribunal against the agent who handled the mortgagee sale, complaints with the Law Society against Mr Porus of Glaister Ennor, and is undertaking discussions with the police in relation to having criminal charges laid against unspecified parties, there is no current proceeding challenging the way his account with Norfolk has been handled, under the CCCFA.   Such a proceeding was once on foot but, as I have said, it has been struck out. Assertions by Mr King of an entitlement to a remedy fall well short of establishing a cross claim against Norfolk.

[16]     Quite apart from that, a statement produced in evidence by Norfolk showing how the proceeds of the mortgagee sale was applied puts an end to any suggestion that there could possibly be any credit in relation to either legal fees or interest of which Mr King can avail himself by way of a cross claim in this proceeding.  I set out the statement in full:

Proceeds from Mortgagee Sale

Sale and Purchase Agreement – Sale Price  $400,000.00

Less Agent’s commission  $18,170.00

Plus interest earned on deposit  $105.67

Plus insurance refund  $2,075.73

$384,011.40

Less: Repayment of Loan Principal:  $331,800.00

Expenses:

20/10/2010	Insurance to 24/9/2011	$548.48
7/04/2011	Rates Arrears to 30/06/10	$1,192.32
22/09/2011	Insurance to 24/9/2012	$812.45
21/09/2012	Insurance to 24/9/2013	$1,185.26
10/04/2013	Rates arrears to 1/1/2013	$11,929.85
30/04/2013	Marketing Re Sale	$2,771.15
1/05/2013	Canterbury Locksmiths	$676.30
10/05/2013	Ford Baker Valuation	$1,012.00
10/05/2013	Sub Five Private Security	$2,056.20
10/06/2013	Power Re Meridian Energy	$10.12

10/06/2013    Structex Metro Limited  $6,987.98

10/06/2013    Christchurch City Council                 $1,856.12

25/06/2013    Sub Five Private Security                   $1,711.20

10/07/2013    Power Re Meridian Energy  $11.13

15/07/2013    Sub Five Private Security                  $1,656.00

12/08/2013    Power Re Meridian Energy  $35.61

14/08/2013    Rates to 14/08/2013  $503.43    $34,991.60

$366,791.60

Balance applied to Mortgage Interest  $17,219.80

$0.00

[17]     As can be seen, net proceeds of sale of $384,011.40 were available from the sale.  These were applied to repayment of the initial principal advanced, $331,800, marketing fees, rates, insurance, power charges, security charges and a cost incurred with a locksmith.  When all those sums had been paid, $17,219.80 was left, and was applied to interest. According to a director of Norfolk, Mr Spong, at that time a sum in excess of $70,000 was due and payable for interest.

[18]     Significantly, no sum for legal fees to Glaister Ennor was paid from the proceeds of sale.   Whilst it is clear that a debit for a payment to that firm was charged to the loan account earlier, the proceeds of sale were applied to repayment of the principal sum and costs and expenses relating to the sale, including those which have been incurred in order to pass a clear and unencumbered title to the purchaser, and  other minor expenses relating to  security.   The balance of $17,219.80  was applied to interest.  Even if Mr King’s claim that he is not obliged to pay any interest at  all  on  the  loan  for  the  entire  period  since  the  advance  was  made  were substantiated, only $17,219.80 would be available to him from the proceeds of sale. Not only is that assertion not made out, nor the subject of any proceeding to substantiate it, but as well this sum would not qualify as a cross claim as that term is defined in s 17 of the Insolvency Act.  For a cross claim to be taken into account in assessing whether an act of bankruptcy has been committed, the cross claim must be equal to or greater than the judgment debt or the amount that the debtor has been ordered to pay. The balance of the proceeds of sale fall short by over $35,000.

Outcome

[19]     For the reasons stated I find that Mr King does not have a cross claim against Norfolk, and that an act of bankruptcy has been committed.   There is no sound reason not to adjudicate Mr King bankrupt.

[20]     I therefore adjudicate Mr King bankrupt.  This order is timed at the point at which this judgment is released, 10.00 am on 28 August 2014.

[21]     Norfolk is entitled to costs against Mr King on this application on a 2B basis plus disbursements, fixed by the Registrar if necessary.

J G Matthews

Associate Judge

Solicitors:

Glaister Ennor, Auckland. Mr P A King, Christchurch.