Norfolk Financial Management Limited v King

[2014] NZHC 1013

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV- 2013-409-001192 [2014] NZHC 1013

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:	12 May 2014
Appearances:	M R Bendall for Judgment Creditor Mr P A King, Judgment Debtor, in person
Judgment:	15 May 2014

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Background

[1]      This proceeding commenced with the issue of a bankruptcy notice against Mr King by Norfolk Financial Management Limited.  Mr King did not comply with the notice.  He applied to set it aside.  That application was dismissed by the Court on 14 November 2013, and Mr King was ordered to pay costs to the judgment creditor.

[2]      Mr King then satisfied the debt he owed to Norfolk Financial Management Limited.  The Court made orders on 18 December 2013 granting leave to Norfolk Financial Management Limited to withdraw as a creditor, and substituting the Commissioner of Inland  Revenue as judgment  creditor, pursuant to s 44 of the

Insolvency Act 2006.   The Commissioner was directed to file her application for

NORFOLK FINANCIAL MANAGEMENT LTD v P A KING [2014] NZHC 1013 [15 May 2014]

bankruptcy, and summons to Mr King, and he was given a period within which to

file opposition to the Commissioner’s application to have him adjudicated bankrupt.

[3]      On 4 February 2014 the Court issued a Minute noting that the Commissioner wished to withdraw as her debt was satisfied.  Mr King was given a period within which to seek costs.  At the same time a further creditor of Mr King, a solicitor’s firm called Cherry Kannangara Thomson applied to be substituted, and was given a period within which to file evidence to support its status as a creditor.

[4]      On 3 March 2014 the Court heard two applications by Mr King, the first to strike out the proceeding, or alternatively to transfer it to the Disputes Tribunal.  The Court declined both applications for reasons given in a Minute issued by Associate Judge Osborne on that date.  The Judge also made timetable orders in relation to the application for substitution by Cherry Kannangara.

[5]      That application was due to be argued before me this week.   Last week counsel for Cherry Kannangara advised the Court that the application would be withdrawn when called, as the debt claimed is for legal fees and Mr King has applied to  have  those  fees  reviewed  by the  Legal  Complaints  Review  Officer.    In  this circumstance counsel felt he could not persuade the Court that his client’s claim to be a creditor was sustainable.

[6]      When the case was called Mr Bendall appeared on instructions for Cherry Kannangara and confirmed that it wished to withdraw the application.   He also appeared as counsel for Norfolk Nominees Limited and sought substitution of that company as a creditor in the sum of $41,578.13.

[7]      This debt is the amount of a sealed order for costs and disbursements made by this Court and sealed on 11 March 2014.  The costs relate to an application for summary judgment by Norfolk Nominees Limited against Mr King.  Judgment was entered on 5 March 2013.  At that point costs were reserved, but were fixed in a judgment dated 25 February 2014 following written submissions.

[8]      In  support  of  the  application  for  substitution  the  solicitor  for  Norfolk Nominees Limited filed a certificate that as at 12 May 2014, to the best of her knowledge and belief, the judgment debtor had failed to pay in full that judgment debt.

[9]      This application followed an indication by Mr Bendall on behalf of Norfolk Nominees Limited on 26 March 2014, when the company appeared in support of Cherry Kannangara’s application, that it would seek to be substituted as creditor if that application did not proceed.

[10]     Section 44 of the Insolvency Act provides:

Substitution of creditor

(1)   The  Court  may substitute another  creditor  (Creditor  2)  for  the  creditor making the application for adjudication (Creditor 1), if—

(a)     Creditor 1 has not proceeded with due diligence or at the hearing of the application offers no evidence; and

(b)     the debtor owes Creditor 2 $1,000 or more.

(2)   In that case, Creditor 2 must file another application for adjudication, but can rely on the act of bankruptcy to which Creditor 1's application related.

[11]     Subs (1)(a) is satisfied; Mr King says that subs (b) is not.  He accepts that he has not paid the judgment debt in the sense of having handed over cash or other legal tender by specific reference to it, but he says that Norfolk Nominees Limited holds a credit to his account, and therefore he has effectively paid the costs because the sum ordered to be paid by the Court should be deducted from that credit.

[12]     The credit to which he refers is the sum of $78,221.27.   This is a sum for legal fees described in a document which Mr King produced.1   It is dated 9 July 2012 and is a notice by Norfolk Nominees Limited as mortgagee to Mr King as mortgagor under s 119 of the Property Law Act, setting out the consequences if specified defaults under Mr King’s mortgage were not remedied.  Attached to the notice is a

financial statement, one item in which is the debit, described as a “further advance”

1      It is attached as exhibit A to an affidavit sworn by Mr King on 12 May and filed minutes before the hearing was due to commence.  After giving Mr Bendall an opportunity to read the affidavit I admitted the affidavit in evidence without opposition from him.

by Norfolk Nominees Limited to Mr King for legal costs, to which I have referred. Mr King says that no part of this sum was properly payable at the time that Norfolk Nominees Limited paid it to their solicitors and entered it as a further advance against his loan, because disclosure in respect of Norfolk Nominees Limited’s loan to him, required by the Credit Contracts Act had not then been given.

[13]     In support of this argument Mr King outlined to me the challenges he has made to the actions of Norfolk Nominees Limited and, of specific relevance, the charges debited to him for fees paid by Norfolk Nominees Limited to its solicitors, with the Law Society, the Commerce Commission, the High Court and the Court of Appeal.

[14]     Mr King raised substantially similar arguments before me at a hearing on

13 November 2013 when he applied for an order setting aside the bankruptcy notice issued against him by Norfolk Financial Management  Limited, to which I have referred earlier in this judgment.2    That notice was based on a sealed order of this Court dated 15 November 2012 by which Mr King was ordered to pay costs and disbursements of just over $10,000 which had been awarded against him on a successful application to strike out a claim he had brought against a Mr J L Porus.

Mr Porus was a partner in the firm Glaister Ennor, and Glaister Ennor is the firm which acts for both the Norfolk companies, and to which the sum of $78,221.27 had been paid.  At paragraphs [22] to [28] of the judgment of 14 November 2013 I said this:3

[22]     First, Mr King says that on 14 August 2013 he received a document titled “Report by Mortgagee in Possession of Mortgaged Land” in which Norfolk Nominees Limited, the mortgagee of Mr King’s former property in Christchurch, presented a statement of account for Mr King’s loan which included  a  number  of  entries,  including legal  costs of  $78,221.27,  rates arrears, insurance premiums and a number of other expenses relating to the property.  Mr King says that it was only on receipt of this document that he came to know that he could claim against Norfolk Financial Management Limited, the judgment creditor, which he believed until then was in fact his mortgagee, because not only were these payments subject to challenge, but as well he had not received adequate disclosure under the Credit Contracts & Consumer Finance Act 2003.  He also pointed out discrepancies between this report and another he had received in March, which he was unable to reconcile.  Thus, Mr King mounted an argument that it was not until August

2 See above at [1].

3      Norfolk Financial Management Ltd v King [2013] NZHC 3027 at [22]-[28].

that he was in a position to bring a cross claim against the judgment creditor within s 17(1)(d)(ii) and (7).

[23]     Mr Bendall says that all the claims Mr King believes he has against Norfolk  Financial  Management  Limited  were  raised  in  the  proceeding against that company and Mr Porus which was struck out by judgment of this Court dated 15 November 2002.  He says that the information Mr King received in August 2013 could only have assisted with quantification of claims that have either been the subject of earlier proceedings in this court, or were certainly available to Mr King to bring well before the judgment was entered.

[24]    I  accept  that  the  provision  of  information  by  Norfolk  Nominees Limited in relation to the sale of the mortgage property, in the report referred to,  provided  to  Mr King  information  in  relation  to  expenses  charged  in respect of the loan.  However, I find that this does not provide Mr King with a cross claim within the required parameters for two reasons.

[25]   First, Mr King has already brought proceedings against Norfolk Financial Management Limited, in which he has raised issues concerning the requisite degree of disclosure in respect of the mortgage, and which have been the subject of a judgment in this court, and in the Court of Appeal.  It is that very proceeding which was struck out due to Mr King’s non-compliance with an unless order, which led to the adverse award of costs against him which  is  the  foundation  for  the  bankruptcy  notice  in  issue  before  me. Mr King  did  not  establish  an  evidentiary  foundation  for  his  general contention that he has still not received disclosure to which he is entitled under  the  Credit  Contracts  &  Consumer  Finance  Act,  which  could,  if properly established before the Court, lead to a remedy under that Act in respect of interest and charges.

[26]    Mr King asserted in submissions that he had not had ‘disclosure’ and therefore would be entitled to a credit under the Act for a sum equal to each charge.  Although he has had the report to which he referred for some three months, he has not formulated a claim or, in particular, set out how he says the judgment creditor has failed to comply with its obligations under the Act in a way which would lead to the credit to which he refers.

[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]     Since  that  judgment  was  entered  six  months  ago  the  position  has  not materially changed.   Mr King still says that he is entitled to a credit for the costs which he said should not have been debited to his loan account (though he now says this should be from Norfolk Nominees Limited) and he still says that he is entitled to offset this credit against the costs ordered by the Court.  In the context of Norfolk Financial Management Limited, that argument has already been rejected.

[16]     Despite the various challenges brought by Mr King to the actions of the Norfolk companies and their solicitors, no ruling has been made by a court or the Law Society adverse to the validity of the fee charged by Glaister Ennor and shown as a further advance in the way I have described.  Mr King challenged this charge before the Law Society and it decided that no further action was warranted on his challenge.  He did not appeal that decision.  Mr King seems to have derived some encouragement from the fact that the Commerce Commission appeared in the Court of Appeal as an intervener in the case referred to in the passage quoted above, but it is clear from the judgment of the Court of Appeal that this was to present argument in relation to the interpretation placed on certain sections of the Credit Contracts and Consumer Finance Act by the High Court.  Nothing in the judgment of the Court of Appeal decides that the Commerce Commission was of the view that the $78,221.27 charge was invalid, or at least should not have been made due to disclosure not having been properly given.

[17]     This means that Mr King is in effect asking this Court on this application to find that a sum which the Court has ordered him to pay should be set off against a sum  which  he  says  he  has  been  improperly  charged.    He  says  that  the  Credit Contracts and Consumer Finance Act allows, indeed requires, what would amount in effect to be a current account between Mr King and Norfolk Nominees Limited to operate.

[18]     The difficulty with that argument is that the Court order is not a debt charged by Norfolk against Mr King, which might appear as an entry in a current account. Rather, it is an order by this Court that a certain sum be paid, putting liability to do so beyond doubt or challenge, except on appeal.  No appeal has been brought against the order and the time for so doing has expired.   I have already recorded this in

paragraph [28] of my judgment of 14 November 2013.  Any claim Mr King may have against Norfolk Nominees Limited is entirely unrelated.

[19]     Therefore the position is that Norfolk Nominees Limited is a creditor owed in excess of $1,000 by virtue of the order of the Court, and it is therefore entitled to be substituted as a creditor in this proceeding under s 44 of the Insolvency Act 2006.

Outcome

[20]     I make the following orders:

(a)    Norfolk Nominees Limited is substituted as a creditor of Mr King, in this proceeding.

(b)Norfolk Nominees Limited is to file a new application for adjudication pursuant to s 44(2), relying on the act of bankruptcy initially relied on in this proceeding.

Costs

[21]     The costs in relation to the application by Norfolk Nominees Limited to be substituted as a creditor on this proceeding are reserved for consideration when its application for adjudication is decided.

[22]     As I have indicated, both the Commissioner of Inland Revenue and Cherry Kannangara have previously been substituted as creditors, and have each withdrawn from their involvement.  In each case Mr King seeks costs.

[23]     As noted, Mr King is self-represented.  Only in exceptional cases can a lay litigant recover costs.4

[24]     Mr King says this is an exceptional case; he says the creditors which have successively been substituted in this proceeding have been “talking to each other”

which I take to be a suggestion that there has been inappropriate collaboration, and

4      Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400 at [162].

he says he should recover the costs which he paid (pursuant to a court order) to

Norfolk Financial Management Limited.

[25]     Nothing  in  the  submissions  made  by  Mr  King  shows  this  case  to  be exceptional in any way.  What has occurred is that a succession of creditors has been substituted into the original proceeding, each entitled to rely on the initial act of bankruptcy relied on by Norfolk Financial Management Limited.   The Insolvency Act provides for this to occur.  Two of the three creditors in this proceeding to this point have been paid, and the third, Cherry Kannangara, has only withdrawn because Mr King has sought to challenge its fee account with the Legal Complaints Review Officer.  Now a fourth creditor seeks to rely on the same act of bankruptcy to recover the sum owing under an order of this court.  No basis has been made out to show that in relation to the Commissioner of Inland Revenue, there should be an award of costs in favour of Mr King.

[26]     The same applies in relation to Cherry Kannangara.  The challenge to its fee was  filed  after  Cherry  Kannangara  joined  this  proceeding,  indeed  after  the application to join was set down for hearing on 12 May.  Counsel for the law firm responsibly withdrew its application to be substituted on the application once that occurred. Again, no exceptional circumstances are made out.

[27]     The applications for costs against the Commissioner of Inland Revenue and

Cherry Kannangara are dismissed.

J G Matthews

Associate Judge

Solicitors:

Glaister Ennor Auckland. Mr P A King, Christchurch.