Parlane v Young HC Auckland CIV 2010-404-005478

[2011] NZHC 1325

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-005478

BETWEEN  JCM PARLANE Judgment Creditor

AND  M YOUNG Judgment Debtor

Hearing:         22 July 2011

Counsel:         A W Johnson for Bankrupt

E D Nilsson for Judgment Creditor
K N Wakelin for Official Assignee

Judgment:      22 July 2011

Reasons:        25 July 2011

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE OSBORNE DISMISSING APPLICATION FOR ORDER SUSPENDING ADJUDICATION

The judgment was delivered on 25 July 2011 at 4.00 pm pursuant to

Rule 11.5 of the High Court Rules.

.................................... Registrar/Deputy Registrar

Introduction and record of orders

[1]      On 19 July 2011 I declined the application of the judgment debtor for a further adjournment of an application for his adjudication in bankruptcy and I made

an order of adjudication.

JCM PARLANE V M YOUNG HC AK CIV 2010-404-005478 22 July 2011

[2]      On 22 July 2011 I heard an application made by Mr Young for an order suspending his adjudication and for other orders.  I dismissed his applications with reasons to follow.

The applications

[3]      Mr Young applied to the Court for orders:

1.Suspending his adjudication in bankruptcy until an appeal filed in the Court  of Appeal  in  relation  to  the  adjudication  is  determined  (in reliance upon s 416 Insolvency Act 2006); and

2.That the Official Assignee not advertise the adjudication until after the Court of Appeal has determined the appeal (in reliance  upon s 66 of the Act); and

3.If necessary, leave to appeal and proceed with such appeal in relation to the decision of Judge Harvey in the District Court on 21 June 2001, being a decision not to set aside a District Court judgment obtained by default on 20 August 2010.

Mr Young’s debt and adjudication

[4]      The creditor on 20 August 2010 obtained a default judgment in relation to fees.  The certificate of judgment issued for the purposes of the bankruptcy notice was for a sum of $23,846.27.

[5]      The bankruptcy notice was served on Mr Young on 22 November 2010 and when he failed to comply with it the creditor filed an application for an adjudication order  on  25 January 2011,  with  the  proceeding  being  served  on  Mr Young  on

7 February 2011. The allocated hearing date was 10 March 2011.

[6]      On the afternoon of 9 March 2011 Mr Young, through a solicitor, filed a notice of opposition which gave as his reasons for opposing bankruptcy that he was

applying to have the judgment debt set aside and that it would be unjust and inequitable for him to be adjudicated.  He filed a two paragraph affidavit deposing that he applied that day to the Auckland District Court to have the default j udgment set aside and that a further affidavit would be filed which would outline his reasons in opposition.   Mr Young also presented to the Court a medical certificate dated

7 April 2011 indicating that he had been under severe stress for the past four weeks due to his medical condition.

[7]      Counsel for the creditor appeared on 10 March 2011 wishing to proceed. Counsel for Mr Young sought an adjournment.   It was explained that Mr Young would be pursuing issues of alleged procedural error in the District Court process, with the first call of the District Court application to be on 10 May 2011. Notwithstanding the strong opposition of the creditor to any adjournment, the Court adjourned  the  proceeding  to  7  July  2011  in  the  expectation  that  counsel  for Mr Young would make every effort to have the District Court proceeding resolved in that time.

[8]      Having regard to Mr Young’s conduct and the indulgence obtained by him, the Court awarded costs and disbursements against him (to be paid in any event). Those have been subsequently certified at $2,726.74.

[9]      Mr Young’s application to the District Court for an order setting aside the

default judgment was heard on 21 June 2011.  The judgment of Judge Harvey dated

21  June 2011  (District  Court Auckland  CIV 2010-004-591  Parlane  v Young)  is before the Court.  His application was dismissed and the creditor was awarded costs of $750 payable in any event.   The Judge dismissed both grounds of irregularity advanced by Mr Young.  First His Honour found that the evidence all pointed to the fact that Mr Young did in fact receive the information capsule which he asserted he had  not received.    Secondly,  His  Honour  found  that the time  of service  of the document (8.13 am as against the period for service of 9 am to 5 pm provided in the District Court Rules) was not material, any irregularity being saved by the saving provision of r 1.10 District Court Rules.  His Honour further found that there was no real  basis  or  evidential  foundation  for  Mr  Young’s  contention  that  he  had  a substantial ground of defence relating to an oral contract for deferment of payment

or alternatively relating to a counterclaim for breach of instructions.   His Honour noted:

It seems to be a common feature in Mr Young’s affidavits that assertions are

made without any sort of evidential foundation or support.

[10]     In relation to the District Court proceeding, Mr Young has in addition to the costs awarded on the hearing of $750 an additional costs judgment against him in the sum of $500 as a result of an adjournment along the way.

[11]     The bankruptcy proceeding came before this Court again on 7 July 2011.  On the day of that hearing counsel for Mr Young provided to the Court a notice of appeal in respect of Judge Harvey’s decision which counsel indicated was ― in the course of being filed‖.   A copy of an affidavit apparently sworn that day (7 July

2011) was also provided to the Court (although it appears the original has never been filed).  In the application Mr Young explained the basis upon which he had sought the setting aside of the District Court judgment and upon which he was to pursue an appeal.

[12]     Counsel for Mr Young sought a further adjournment upon the basis that an appeal of the latest District Court judgment was proceeding.  Counsel for the creditor spoke to written submissions and sought adjudication immediately upon the basis that the debtor had taken no serious steps to satisfy or reduce his current debts and that there was no doubt as to his insolvency.

[13]     Associate Judge Faire granted an adjournment of the proceeding to 19 July

2011.  His Honour fixed the costs of recent appearances at $1,504 and ordered that those costs, together with the previous costs, be paid in any event.   His Honour recorded an expectation that the total High Court costs (now $4,228.74) would b e paid in clear funds by the date of the adjourned hearing on 19 July 2011.

[14]     In granting the adjournment, His Honour took into account the subject matter of the judgment debt.  The subject matter of the judgment debt was counsel’s fee.  If Mr Young were to make payment of the judgment debt there may prove to be a problem  (following  a  successful  appeal)  of  recovering  that  payment  from  the

creditor.  His Honour recorded that if Mr Young were to seek a further adjournment of the proceeding on 19 July 2011 then he would need to have provided a bank cheque payable to the Registrar in the sum of $24,522.22 (that is, in addition to costs).  His Honour recorded that unless Mr Young was in a position to do that it was unlikely that any further adjournment of the proceeding would be granted.

[15]     The matter came before the Court again on 19 July 2011.  On this occasion Mr Young appeared in person.   Counsel for the creditor again sought an order of adjudication.   Mr Young again sought adjournment, by reference to material contained in an affidavit sworn on 19 July 2011 and a further affidavit sworn on the morning of the hearing (21 July 2011).  Mr Young deposed that he had arranged for some funds ($A294,565.55) to be made available for him in Australia.  The funds were in the name of the ―Young  Trust‖.   Although a bank printout exhibited by Mr Young indicates that the stated balance is ―available‖ Mr Young deposed that he had been unable to have the bank transfer the requested funds (initially because he had apparently sought more than the transfer limit).  Mr Young referred to a chapter of problems with the bank, spending most of the day trying to free up the money, and having every intention of meeting his commitments as soon as the money arrived in New Zealand.  (That was on 19 July 2011 – when this proceeding came before me again on 22 July 2011 there was no suggestion that even then Mr Young had got his hands on any of the imminent money.)

[16]     Having heard from both counsel for the creditor and Mr Young, I declined

Mr Young’s request for adjournment.  I said:

The  debtor  has  not  satisfied  the  minimum  expectations  of  the  Court  in relation to the previous adjournment and it is not appropriate that the creditor be exposed to further appearances when payment may or may not eventuate. I therefore decline the application for adjournment.

[17]     I then made an order of adjudication.   There was no evidence before the Court to rebut the presumption created by Mr Young’s failure to meet the bankruptcy notice and his own evidence and conduct during the period of adjournments in this Court has evidenced his inability to meet his debts as they arise.

The appeal from the District Court judgment

[18]     In the way matters seemingly go for Mr Young, not all has gone well with his appeal.

[19]     I was informed by Mr Johnson (for Mr Young) that, contrary to the statement in the application for an order suspending the adjudication that: ―the judgment debtor has today lodged an appeal ...‖, the notice of appeal was not in fact filed.  It seems Mr Young sent the notice of appeal to an unspecific address and that it was not received by the Court in time.   Mr Nilsson (for the creditor) informed me that Mr Young has also failed to serve the notice of appeal in time (or at all).

[20]    Mr Johnson recognised that the effect of Mr Young’s adjudication and bankruptcy on 19 July 2011 – staying proceedings in which he is involved – may have meant that Mr Young needed leave to continue with any proceeding such as an appeal.  There was accordingly included within the notice of application before me an application for leave to appeal, if leave is necessary.

[21]     By dint of the problems of the actual filing and service of the appeal there is also now the need for leave to appeal out of time.   That latter leave would be required from the Court of Appeal.

The Court’s power to suspend an order of adjudication

[22]     Section 416 Insolvency Act provides:

416      Suspension of adjudication pending appeal

(1)       If  an appeal has been filed  against an order of adjudication, the bankrupt or any other interested person may apply to the Court or the Court of  Appeal  for  an  order  suspending  the  adjudication  until  the  appeal  is decided.

(2)       The Court or Court of Appeal may suspend the adjudication on the conditions that  it thinks appropriate, including  conditions  as to  anything done or decided, or that ought to have been done or decided, by any person in   the   period   between   the   adjudication   and   the   order   suspending adjudication.

(3)       The Court or the Court of Appeal may at any time make an order as it thinks appropriate as to anything done or decided, or that ought to have been done or decided, by any person in the period between the adjudication and the date when the appeal is decided if—

(a)      the adjudication has been suspended and the appeal fails; or

(b)      the  adjudication  has  not  been  suspended  and  the  appeal succeeds.

[23]     The equivalent section in the earlier legislation was s 9(3) Insolvency Act

1967.

[24]     Counsel referred me to two decisions which dealt with the 1967 legislation. [25]     In Lindsay v Vaucluse Holdings Limited CA272/99, 13 December 1999, the

Court  of Appeal  dismissed  an  application  for  suspension.   As in  this case,  the appellant  was  appealing  against  both  the  adjudication  and  the  judgment  which created the debt.  His ground of application for suspension was that it was ―in the interests of justice that [he] should not be prevented from pursuing his appeal by the adjudication‖.   The Court of Appeal (disapproving the judgment to the contrary in Re West ex parte Watson, HC Auckland B855/78, 30 April 1980) rejected the premise that the appellant was prevented by his adjudication from pursuing his appeal against adjudication.  Such a conclusion conflicted with the plain terms of s 9 (now s 416).

[26]     The Court of Appeal also rejected the submission that an appeal against the underlying judgment could not proceed without the suspension of the adjudication. The Court noted that the Official Assignee may, either with or without the assistance of the Court, pursue an appeal in the name of the bankrupt.

[27]     Finally, the Court also found that the appellant had not demonstrated any good reason why there should be a suspension in the meantime, having established no evidence suggesting any particular prejudice.  The Court noted that if the appeal were to succeed the position would be analogous to an annulment.

[28]     In  Kroon  v  Westpac  Banking  Corporation  HC Auckland  CIV 2006-404-

004720,  15  May  2007,  Ronald  Young  J  refused  an  application  for  suspension pending appeal.  His Honour dealt with four grounds advanced by the appellant:

1.That  the  stigma  and  inconvenience  of  bankruptcy pending appeal would render nugatory the appeal –

His Honour observed that all bankrupts suffer some stigma and that the statutorily provided restrictions inevitable affect them in a number of ways.   Those matters alone are not sufficient to justify suspension.   Something beyond the ordinary is required.

2.The merits of pending litigation against a third party were such that there was a reasonable possibility of success and payment in full to creditors –

His  Honour  found  that  a  claim  against a  third  party by a bankrupt will only rarely be a proper basis for suspension of bankruptcy.  It was impossible to accurately assess the chances of success of the litigation and it could not be said on the facts that the pursuit of the litigation was dependent upon the appellant not being bankrupt.

3.        There were solid grounds for an appeal against the adjudication –

On the facts of the case, His Honour considered that a successful appeal against the adjudication would be difficult.

4.There would be no prejudice to creditors, or if there were prejudice, this could be overcome by undertakings from various trusts associated with the appellant –

On the facts, His Honour rejected the submission that there could not be said to be any prejudice to creditors by a suspension.   The lack of ability for the Official Assignee to have the full range of statutory powers available to him could potentially  cause   prejudice   to   creditors  by  limiting  the

Assignee’s capacity to investigate the bankrupt’s financial circumstances.   There were particular factors relating to the lifestyle and lack of candour which led His Honour to finding a positive need for the Assignee to have the full range of powers.   The simple requisition of information would be insufficient.     Undertakings from  associated trusts to voluntarily provide  information  to  the Assignee  would  not ameliorate the possibility that creditors would be injuriously affected.

The submissions for Mr Young

[29]     For Mr Young, Mr Johnson submitted that suspension and/or non-advertising were appropriate because –

1.Mr  Young  had  lodged  an  appeal  in  relation  to  the  order  of adjudication.

2.It would cause his personal and business reputation substantial harm if the adjudication continues throughout the appeal period and the adjudication is advertised.

3.The adjudication is preventing him personally pursuing the appeal of the latest District Court judgment.

4.He  is  involved  in  two  other  sets  of  proceedings  in  which  he  is defending  claims and  they are  so  complex  that  he  is  in  the  best position to defend them.

5.Mr  Young  undertakes  to  the  Court  that  during  the  period  of suspension and non-advertising he will incur no credit obligations in his own name or dispose of any personal assets and will otherwise abide by any condition the Court considers appropriate.

6.Mr Young is a current director of 13 active companies some of which are quite heavily involved in ongoing commercial transactions and business.

7.There is no prejudice to the creditor in relation to such orders because the debtor has assets available to him to meet personal liabilities but has no personal assets.   He is prepared to complete a statement of affairs to the Official Assignee confirming this position.

The submissions of the other parties

[30]     The Official Assignee had through counsel filed a memorandum recording that he would abide the decision of the Court.

[31]     Ms Wakelin who appeared for the Assignee, referred to case law in relation to suspension, and identified matters which the Court might wish to consider.  These

included –

Given Mr Young’s dependence on third party assistance to satisfy his debt, and his failure through four adjournments to pay the debt from that  source,  there  must  be  doubt  on  his  ability  to  meet  his

indebtedness through third party assistance.

An undertaking by Mr Young to incur no credit or dispose of personal assets during a period of suspension may be of little practical effect

when he has virtually no personal assets.

In relation to Mr Young’s defence of other litigation which is being defended, provided there is funding for the advancing of defences which are warranted on a merit basis, there is unlikely to be any

difficulty in the Assignee’s advancing such defences.

There is a lack of detail in relation to companies (said by Mr Young to be   13  active  companies)  in  which  he  is  involved  –  financial

statements of companies have not been disclosed so it is not clear whether any sums owing to Mr Young; and it is not clear whether Mr Young   has   previously   held   shareholdings   in   some   of   the

companies of which he is now listed solely as director.

There is inadequate disclosure of the Trust in which Mr Young is apparently involved, with no financial details having been provided

(other than the bank account statement to which I have referred).

Mr Young’s offered undertaking to not incur credit obligations in his own name or dispose of personal assets leaves associated entities free to deal with their assets, which could lead to a depletion or transfer of

assets to the detriment of the bankrupt estate.

Insufficient disclosure of property and affairs gives rise to concerns of creditor  prejudice  and  are  factors  which  a  Court  should  properly

consider in relation to an order such as suspension.

[32]     Mr Nilsson for the creditor made submissions similar to those of Ms Wakelin

and emphasised –

The  significant  indulgences  Mr  Young  has  received  (with  the

proceeding five times in Court).

The passage of time (four months) since the first hearing.

Mr Young’s failure to properly initiate his appeal when Judge Faire had emphasised the need for due diligence in the prosecution of the

appeal.

Mr Young’s failure and apparent inability to pay outstanding High

Court and District Court costs.

A general failure to communicate with his creditors about progress,

leaving it to formal documentation filed in Court.

Mr  Young’s  dependence  on  access  to  Trust  funds  when  he  has

produced no evidence of the constitutional or general position of the

Trust.

Discussion

Mr Young’s history of last minute efforts to avoid his bankruptcy.

[33]     I find it useful, as did Ronald Young J in the Kroon decision, to consider the list of factors in relation to a stay of execution identified by Hammond J in Dymocks Franchise  Systems  (NSW)  Pty  Limited  v  Bilgola  Enterprises  Limited  (1999)

13 PRNZ 48, as well as considering factors peculiar to this case.

[34]     The factors or conclusions which weigh in my judgment are:

1.Mr Young’s appeal against his adjudication and bankruptcy will not be rendered nugatory if the order of adjudication is not suspended. Nor will his defence of District Court proceedings be rendered nugatory, given the Assignee’s ability and willingness to conduct a defence on behalf of the bankrupt estate if the merits and the funding justifies it.

2.On  the  other  hand,  the  creditor  (and  other  creditors)  may  be injuriously  affected  by  a  suspension.    Mr Young’s  willingness  to complete a statement of affairs and to answer any questions of the Assignee does not provide the same measure of investigation and sanctions as are available to the Assignee in the course of normal administration.

3.Mr Young’s personal undertakings not to incur credit obligations in his own name or dispose of any personal assets can be of little significance given his statements as to the modest nature of his assets

and it falls short of protecting creditors in relation to the assets of trading companies or trusts if it later proves that Mr Young had vested rights in relation to those.

4.It  appears  that  Mr  Young  genuinely  intends  to  pursue  an  appeal against the District Court judgment although there is some reason to doubt how thorough Mr Young is prepared to be in that regard given his recorded history in the District Court proceedings of failure to maintain his relationship with counsel and, in the present instance, his botching of his attempts to appeal.  That said, there is also no reason to suppose that his intention to appeal the adjudication is not genuine although on his track record there may be questions as to his ability to progress an appeal efficiently.

5.No novel or important questions of law arise in relation to his adjudication.   His reasons for appealing the adjudication relate primarily to the fact that he has not yet been able to have the District Court judgment set aside.

6.There is a public interest in the investigation of the bankruptcy circumstances in the usual way.

7.There must be real questions as to the merits of the appeal given that Mr Young has been either unwilling or unable to adopt the Court’s normal expectation that the judgment creditor be paid (or at least secured) the fruits of its judgment pending any appeal.

8.There is no dispute in this case as to the fact that the Mr Young has failed  to  pay  his  judgment  debt,  together  with  the  subsequent judgment debts in relation to costs.  His repeated plea to this Court in relation to the bankruptcy proceeding was in the nature of a plea to the residual discretion to not bankrupt him.  When the Court adjourns a bankruptcy adjudication application, as it did on a repeated basis in this case, there must come a point in the balancing of the creditors’

rights   against   the   debtor’s   personal   interest   where   no   further

adjournments are appropriate.  That is particularly so in the area of insolvency.

Conclusion

[35]     In these circumstances I concluded that there was no strong factor in favour of a suspension of the adjudication order but there were a number of strong factors against.

[36]     I therefore refused the application for suspension of the adjudication.

Alternative - Section 66 Insolvency Act 2006

[37]     Section 66 of the Act provides:

66      Order that Assignee must not advertise pending appeal or application for annulment

The Court may order that the Assignee must not advertise the adjudication if the bankrupt has appealed against an order of adjudication or if the bankrupt has applied for an annulment of the adjudication.

[38]     Mr   Young’s   application   involved   this   provision   in   the   alternative. Mr Johnson’s submissions did not focus on the limited relief of non-advertising. That was evidently because the real focus of Mr Johnson’s submissions was on the proposition that Mr Young should not be constrained by the loss of control of his own affairs – Mr Young’s wish is to be able to continue to have the conduct of the various pieces of litigation in which he is involved and to continue to have the ability to function as a company director in relation to 13 active companies.

[39]     What  Mr  Young  did  state  in  his  evidence  specifically  in  relation  to advertising was this:

My concern is that, should the adjudication be advertised, it will effect (sic) not only my reputation but the reputation of the companies I am a director of.   It may have a direct influence upon the business activities referred to above.

[40]     Having reached the conclusion I have in relation to suspension, I would not consider it appropriate on the facts of this case to order a restraint on advertising if the  bankruptcy  concerns  arose  simply  with  regard  to  the  relationship  between himself and his creditors.  Advertising is a very important function of the Assignee’s functions as it enables the Assignee to establish and satisfy himself as to the extent of creditors.     There  might  be  rare  cases  where  the  impact  on  others  (possibly businesses, possibly close relatives) might call for a period of non-advertising.  The only issue raised by Mr Young relates to the impact on companies of which he is a director.  I do not view that as an appropriate basis to order no advertising in this case.   The legislation effects a disqualification of the bankrupt from the role of director – given my decision to not suspend the adjudication that disqualification applies.   Mr Young is in a position to protect the reputation of the companies by resigning his directorships.

[41]     I therefore refused the application for an order that the Assignee not advertise the adjudication.

Leave to proceed with appeal

[42]     Given my refusal of the other two applications, it is not necessary now to consider whether Mr Young should have leave to pursue an appeal from the District Court judgment.   In any event it appears that that appeal may be out of time.   I accordingly adjourn that application with leave to bring it on on five days’ notice.

Costs

[43]     Having announced my decision in Court, I invited counsel to address me on costs.

[44]     Mr Nilsson applied for costs on a 2B basis together with disbursements to be fixed  by the  Registrar.   Mr  Johnson  responsibly accepted  that  he  was not in a position to submit that such an order was inappropriate.

[45]     I therefore order that the judgment debtor pay the costs of this proceeding, including the final hearing, on a 2B basis together with disbursements to be fixed by the Registrar.

[46]     Ms Wakelin for the Assignee noted that there is legislative provision for the Assignee’s recovery of his costs.  Therefore in relation to the Assignee’s position I order that costs be reserved with leave to the Assignee to apply for them to be fixed if that approach becomes necessary. They would be fixed on a 2B basis.

Addendum

[47]     I express the Court’s gratitude to the manner in which all counsel appeared urgently and presented thoughtful and helpful submissions.

Solicitors:

Martelli McKegg for Judgment Debtor, P O Box 5745, Wellesley Street, Auckland 1141

Lee Salmon Long for Judgment Creditor, P O Box 2026, Shortland Street, Auckland

Meredith Connell, PO Box 2213, Auckland 1140