Paterson v Lepionka & Co Investments Ltd
[2019] NZCA 548
•12 November 2019 at 3 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA756/2018 [2019] NZCA 548 |
| BETWEEN | GARTH BOWKETT PATERSON |
| AND | LEPIONKA & COMPANY INVESTMENTS LIMITED |
| Hearing: | 16 October 2019 |
Court: | French, Lang and Mander JJ |
Counsel: | D G Dewar for Appellant |
Judgment: | 12 November 2019 at 3 pm |
JUDGMENT OF THE COURT
AThe application for leave to adduce new evidence is declined.
BThe appeal is dismissed.
____________________________________________________________________
REASONS OF THE COURT
(Given by Lang J)
Mr Paterson and his company GLW Group Ltd (GLW) have been involved in litigation in the High Court with Mr Stefan Lepionka and entities associated with him since September 2015. At an interlocutory stage of that litigation Mr Paterson and GLW withdrew an application seeking an interim injunction against the first respondent, Lepionka & Company Investments Ltd (Lepionka). On 1 October 2015 the High Court awarded costs in relation to the withdrawn application against Mr Paterson and GLW in the sum of $8,875.24.[1] Lepionka and GLW were jointly and severally liable to pay the award of costs.
[1]GLW Group Ltd v Lepionka & Company Ltd HC Auckland CIV-2015-404-2168, 1 October 2015.
Lepionka subsequently issued a bankruptcy proceeding against Mr Paterson based on the costs award. He took no steps to defend the proceeding and Associate Judge Osborne (as he then was) adjudicated him bankrupt in the High Court at Wellington on 5 April 2016.[2]
[2]Lepionka & Company Investments Ltd v Paterson HC Wellington CIV-2015-485-973, 5 April 2016 (Minute of Associate Judge Osborne).
Mr Paterson did not appeal against the order of adjudication. Instead he promptly applied for an order under s 309(1)(a) of the Insolvency Act 2006 (the Act) annulling the order of adjudication. Associate Judge Osborne dismissed the application in a judgment delivered on 16 June 2016 (the first annulment judgment).[3] Mr Paterson did not appeal against this decision.
[3]Paterson v Lepionka & Company Investments Ltd [2016] NZHC 1331.
In 2018, Mr Paterson lodged a second application for an order annulling the adjudication. Associate Judge Johnston dismissed the second application on 21 November 2018 (the second annulment judgment).[4] Mr Paterson appeals against that decision even though he was discharged from bankruptcy in September 2019.
Application to adduce fresh evidence
[4]Paterson v Lepionka & Company Investments Ltd [2018] NZHC 3022.
Mr Paterson seeks to rely in this Court on an affidavit sworn by Mr Matthew Lawson, a solicitor who acted for him at the time of his adjudication. Mr Lawson also appeared as Mr Paterson’s counsel at the hearing of the first annulment application before Associate Judge Osborne.
Mr Paterson wishes to rely on Mr Lawson’s affidavit to shed light on an issue that was central to the first annulment judgment. It relates to a bank cheque Mr Paterson obtained to satisfy the costs award on which the bankruptcy proceeding was based. In order to understand this issue, it is necessary to describe the events that occurred at the time of Mr Paterson’s adjudication.
On the morning the bankruptcy proceeding was to be called in the High Court at Wellington Mr Paterson sent an email to the Registrar. Amongst other things, this stated that the sum owing under the costs award had been “paid in to trust”. The Registrar referred the email to the attention of Associate Judge Osborne, who was scheduled to hear the application for adjudication.
Before dealing with the application for adjudication Associate Judge Osborne determined an application by Lepionka for summary judgment against Mr Paterson. This related to Mr Paterson’s liability as guarantor for advances GLW had obtained from the Westpac Banking Corporation (Westpac). In or about March 2015 Lepionka had taken an assignment of Westpac’s interest in both the advances and a mortgage GLW had given as security. The mortgage was registered against the title to a property that GLW owned in Hawkes Bay. Mr Paterson had taken no steps to defend the application for summary judgment, and the Associate Judge duly entered summary judgment against him for the sum of $3.825 million.
Associate Judge Osborne then dealt with Lepionka’s application to have Mr Paterson adjudicated bankrupt for failing to pay the costs award. He advised Mr Reid, Lepionka’s counsel, of the email Mr Paterson had sent to the Registrar earlier in the day. Mr Reid also advised the Judge about liquidation proceedings Lepionka had filed in the High Court at Napier against GLW. Mr Reid had made enquiries of Lepionka on the morning of the hearing and ascertained that the award of costs had not been paid. He provided Associate Judge Osborne with a solicitor’s certificate confirming this to be the case. The Associate Judge relied on the certificate in making the order of adjudication.
It subsequently transpired that funds had not been paid into trust as Mr Paterson claimed in his email to the Registrar on the morning of the hearing. Mr Paterson had
instead obtained a bank cheque in the sum of $8,875.24.[5] He provided this to Mr Lawson at some stage in mid-March 2016. Mr Lawson was in possession of the cheque, along with three others, when the liquidation proceeding against GLW was called and adjourned in the High Court at Napier on 21 March 2016.[6] Mr Reid sent an email to Mr Lawson later that day asking him to release the cheque for the costs award to Lepionka but this did not occur.
[5]This represented the amount of the costs award together with interest payable under s 87 of the Judicature Act 1908.
[6]Lepionka v GLW Group Ltd HC Napier CIV-2015-441-104, 21 March 2016.
On 24 March 2016, nearly two weeks prior to the date on which the bankruptcy proceeding was due to be called in the High Court at Wellington, Mr Lawson sent an email to Lepionka’s solicitors advising that the bank cheque would be forwarded to them along with a statement of defence in the liquidation proceeding. By 5 April 2016, however, neither Lepionka nor its solicitors had received the cheque.
Mr Paterson based his first application for annulment principally on the ground that he had obtained and given his solicitor the bank cheque to pay the costs award. Associate Judge Osborne dealt with this issue in the following passage of the first annulment judgment:[7]
[7]Paterson v Lepionka & Company Investments Ltd, above n 3.
[32] In his application, Mr Paterson does not assert that he (or GLW) effected payment of the costs judgment. Rather, the relevant ground in his notice of application was that:
… the sum of $8,931.36 had been tendered by Bank Cheque in payment of the same debt in respect of liquidation proceedings in the High Court at Napier.
[33] Responsibly, Mr Lawson has not suggested today that what he described as the “tendering of the bank cheque” for $8,931.36 at the March hearing constituted a payment of that sum to Lepionka. Even the posting of the cheque to the creditor, when the cheque is subsequently lost in the post, does not normally amount to payment.[[8]]
[8]Wardle v Agricultural and Rural Finance Pty Ltd; Agricultural and Rural Finance Pty Ltd v Brakatselos (No 2) [2012] NSWCA 388.
[34] In his supporting affidavit, Mr Paterson referred to the events of the 21 March 2016 liquidation hearing and the email exchanges which followed. He then deposed:
As a result, I believed, as did my solicitor, that the sum of $8,931.36 had been paid in satisfaction of the Costs Order to which the Bankruptcy Notice and the third cause of action in the liquidation proceedings related [sic]. There was certainly no indication from Mr Reid that he did not receive the hard copy of the Statement of Defence or the bank cheque.
I am now aware that it is claimed that the bank cheque has not been received. If that is the case, then it is simply a matter of cancelling the bank cheque and having it reissued. I have contacted the Bank of New Zealand and it is confirmed that the bank cheque has not been presented. The funds remain in the BNZ and it is simply a matter of having the cheque re‑issued.
[35]Later in his affidavit, in the context of criticism of Mr Reid, Mr Paterson adds that Mr Reid “was also aware that he had been advised that the cheque had been mailed”. This statement, of course, is at odds with Mr Paterson’s 5 April 2016 email in which he had asserted that the money had been “paid in to trust”.
[36]Mr Lawson has not filed an affidavit. Nor has any member or employee of his firm. There is accordingly no evidence to explain whether the bank cheque which Mr Lawson’s email of 24 March 2016 stated “will be forwarded by mail” was in fact subsequently sent. Any covering letter, which one could have expected to have accompanied such a bank cheque, has not been produced. Equally, no evidence has been given to contradict Mr Paterson’s 5 April 2016 email statement that the money had in the meantime been “paid in to trust”.
The affidavit by Mr Lawson seeks to fill the evidential gap Associate Judge Osborne identified. Mr Lawson deposes that he placed the cheque in an envelope addressed to Lepionka’s solicitor. He then placed the envelope in his firm’s mail tray for collection at approximately 4.30 pm. He later checked to confirm that the mail tray had been cleared. He therefore assumed the envelope had been deposited in a post box that was a short distance away from his firm’s office. He says the original cheque has never been returned or recovered. Mr Lawson does not provide a date for these events.
Before this Court will receive fresh evidence on an appeal, established guidelines must be followed. In short, the evidence must be such that it could not have been obtained for use in the Court below, it would probably have had an important albeit not necessarily decisive influence on the result of the case and it must be credible, though it need not be incontrovertible.[9]
[9]Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA) at 649–650.
We accept Mr Lawson’s evidence may be credible, but we do not consider it satisfies the remaining tests. The first requirement cannot be satisfied because the evidence could easily have been placed before Associate Judge Osborne when he heard the first application for annulment. Instead, Mr Lawson chose to appear as Mr Paterson’s counsel. The second test is not met because Mr Lawson’s evidence could not have influenced the outcome in the High Court. It cannot overcome the fact that Lepionka never received or banked the cheque. We therefore decline to receive the affidavit in support of the appeal.
The High Court judgment
Associate Judge Johnston dismissed the second application for annulment because he considered Associate Judge Osborne had already determined all of the issues Mr Paterson advanced in support of it. In reaching this conclusion the Associate Judge followed the approach taken in Creser v Creser.[10]In Creser, Associate Judge Smith concluded that a bankrupt was not entitled to make a second application for an annulment under s 309(1)(a). Associate Judge Johnston cited the following passage from Creser:[11]
[45] It seems to me that there are two broad points of principle which favour the view that a bankrupt (or former bankrupt) should not be permitted to make serial applications for annulment of the original adjudication order. First, there is the principle of finality. It is appropriate in bankruptcy law that issues should be concluded once and for all, in the interests of commercial certainty and finality.[[12]] Secondly, there is the broader litigation principle that a party should put before the Court all matters of which he or she is aware, which go to the issue to be determined, at the one hearing. In Greenhalgh vMallard Somervell LJ said:[[13]]
I think that on the authorities to which I will refer it would be accurate to say that res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subject-matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them.
[46] More recently, the same point was made by Asher J in Rafiq v Secretary, Department of Internal Affairs of New Zealand:[[14]]
Mr Rafiq returns to Court to advance arguments that he could have put forward for decision in the 1385 proceedings, but failed to raise. A party cannot bring a case relating to a certain party, certain sequences of conduct, and a certain timeframe, and then when it fails bring another case raising another similar complaint relating to the same party, the same sequence and the same timeframe. Parties must bring their whole case to the Court so there can be finality of litigation.
[10]Creser v Creser [2014] NZHC 3267.
[11]Paterson v Lepionka & Company Investments Ltd, above n 4, at [13].
[12]Insolvency Law and Practice (online looseleaf ed, Brookers) at [IN37.01(1)(a)] citing Re Guest ex parte BNZ Finance Ltd [1991] NZLR 205 (HC) at 225.
[13]Greenhalgh v Mallard [1947] 2 All ER 255 (CA) at 257.
[14]Rafiq v Secretary, Department of Internal Affairs of New Zealand [2014] NZHC 2064 at [21].
Associate Judge Johnston concluded that the reasoning in Creser reflected a straightforward application of res judicata or issue estoppel principles, and this presented an insuperable hurdle for the second application.[15]
[15]Paterson v Lepionka & Company Investments Ltd, above n 4, [14].
Associate Judge Johnston was prepared to accept that there may be room to make a second application for annulment if new evidence comes to light suggesting an order of adjudication was obtained by fraud.[16] In the present case, however, he did not consider there was any such evidence.[17] Mr Paterson had been aware of all the matters he advanced in support of his second application when he made the first application and he ought to have advanced them then.
Grounds of appeal
[16]At [16].
[17]At [17].
Mr Dewar advances the following grounds of appeal on Mr Paterson’s behalf:
(a)There were new matters before Associate Judge Johnston that permitted Mr Paterson to advance a second application for annulment.
(b)Lepionka was not entitled to obtain an order of adjudication because it was a secured creditor.
(c)Associate Judge Johnston ought to have exercised his discretion in favour of Mr Paterson.
Were there new matters before Associate Judge Johnston that permitted Mr Paterson to make a second application for annulment?
Mr Dewar advances this argument because he acknowledges the hurdle Mr Paterson was required to overcome if he was to succeed with the second application for annulment. He did not challenge the fact that the Associate Judge had applied the principles identified by Associate Judge Smith in Creser.
In his written submissions Mr Dewar argued on Mr Paterson’s behalf that “significant new evidence” was available to the Associate Judge, and that this permitted him to consider the second application on its merits. The new evidence had emerged during the trial of the proceeding that the Paterson interests commenced in September 2015. The trial was held in the High Court at Auckland over three weeks in July and August 2017. At issue in the proceeding was the way in which Lepionka was attempting to sell GLW’s land using its powers of sale as mortgagee under the mortgage Lepionka had acquired from Westpac. Justice Fitzgerald delivered judgment in this case on 14 December 2017.[18]
[18]AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 3116. The judgment was subsequently reissued on 5 February 2018.
Mr Dewar submits that it emerged from this litigation that Lepionka acknowledged it had been adding its solicitors’ costs to the amount of GLW’s debt. In other words, it had bankrupted Mr Paterson based on the award of costs in circumstances where it was also seeking to recover its legal costs from the sale of GLW’s properties.
Mr Dewar provided us with a copy of the extensive written submissions that Mr Paterson presented to Associate Judge Johnston at the hearing of the second application for annulment. The only reference to the issue Mr Dewar now raises is in the last sentence of the following paragraph of Mr Paterson’s submissions:
19. Rather than act for a proper purpose and get the adopted contracts settled and pay off the mortgage etc, SL decided to have LCIL issue litigation proceedings against AC to oust him and his family from their home. This litigation ultimately went to the Court of Appeal and LCIL was thoroughly vanquished. However, prior to the judgment being released AC’s wife contracted cancer, and consequently AC wanted things over, so agreed to settle. Despite GLW having no involvement whatsoever in the litigation, LCIL added all its Coltart litigation costs to GLW’s mortgage.
(Emphasis added.)
It is not surprising Associate Judge Johnston did not refer to this issue in his judgment given the fact that Mr Paterson only raised it in relation to caveat litigation involving Mr Andrew Coltart.[19] The answer to Mr Dewar’s submission, however, is that the fact that Lepionka’s legal costs were added to GLW’s debt does not affect Mr Paterson’s several, as distinct from joint, liability under the award of costs. The position may have been different in relation to both forms of liability if Lepionka had realised its security prior to 5 April 2016 so as to fully repay GLW’s indebtedness, including all the legal fees it had incurred. In that event Mr Paterson’s joint and several liability under the award of costs would obviously have been extinguished, as would his liability under the summary judgment. The evidence makes it clear, however, that settlement of the sale of the first two sections by Lepionka using its powers under the mortgage did not occur until October 2016. These did not produce sufficient funds to repay GLW’s indebtedness at that time. The argument is therefore of no assistance to Mr Paterson in the present context.
[19]See paragraph [28] of this judgment.
Mr Dewar attempted to develop this argument during the hearing by submitting that Associate Judge Johnston had new evidence before him regarding the fact that Lepionka was in the process of exercising its powers of sale under the mortgage. He says this process would inevitably result in repayment of all monies outstanding by both GLW and Mr Paterson. He argues Mr Paterson should not have been adjudicated bankrupt when Lepionka had a ready means at its disposal to recover the debt in another way.
As Mr Colson pointed out for Lepionka, however, this issue is far from new. Mr Paterson clearly knew Lepionka was in the process of realising its security in September 2015 when he issued the proceeding that ultimately led to Fitzgerald J’s judgment. The manner in which Lepionka was seeking to exercise its powers of sale was at the heart of that litigation.
Mr Paterson also referred to the issue, albeit obliquely, in the email that he sent to the Registrar shortly before Lepionka’s application for adjudication was due to be heard on 5 April 2016:
In executing the S179 [Notice], DW - (on behalf of the LCIL) purported to adopt 2 existing contracts for 2 closely related Lepionka entities to complete a purchase of some of the land owned by GLW Group Ltd. The value of those contracts is $4.63m, and the assigned Westpac Mortgage was at that time approximately $2.65m.
The adoption of those contracts occurred over a year ago now, and despite the plaintiff having all the powers of a first mortgagee at it’s disposal, they have still not completed the sale, and continue to refuse redemption of it’s mortgage, as they continue to state that due to the Mortgagee exercising it’s power of sale via the S179 adoption, the mortgage is unable to be redeemed.
…
In addition, Mr Lawson referred to the litigation between the Paterson and Lepionka interests at the hearing of the first application for annulment. Associate Judge Osborne held that it had no relevance to the annulment application for the following reasons:[20]
[42] Counsel addressed me to some extent also on the background of litigation between the parties and associated entities. It is a complicated background and now includes a recent judgment of the Court of Appeal in Coltart v Lepionka & Co Investments Ltd.[[21]] The Court of Appeal allowed an appeal from a judgment in which the High Court ordered the removal of two caveats from the title to a property which GLW had mortgaged to Westpac Banking Corporation. Lepionka had taken an assignment of the mortgage. The appellant, Mr Coltart, claimed an interest in GLW’s equity of redemption of the mortgage. The Court of Appeal found that Mr Coltart arguably had such an interest and went on to find that it was arguable that Lepionka breached its duty to exercise its powers as mortgagee in good faith.
[43] Once it was accepted for Mr Paterson (as it has been) that he could not pursue the setting aside of the summary judgment on this application, the relevance of claims or cross-clams which Mr Paterson might arguably have against Lepionka falls away. Lepionka was entitled to resort to the bankruptcy jurisdiction for the judgment debt.
[44] In relation to the proposition that Mr Paterson should not have been adjudicated bankrupt, the continuing litigation relating to GLW’s mortgage takes matters no further for Mr Paterson. As it is, Mr Reid at the adjudication hearing referred the Court to the events at and surrounding the liquidation hearing on 21 March 2016 and the Court has the opportunity, of its own motion, to consider whether adjournment was called for. The events prior to 5 April 2016 did not cut across Lepionka’s right to request that an adjudication order be made that day.
[20]Paterson v Lepionka & Company Investments Ltd, above n 3.
[21]Coltart v Lepionka & Company Invesments Ltd [2016] NZCA 102, [2016] 3 NZLR 36.
We are satisfied Mr Paterson has been alive from a very early stage to the argument that Mr Dewar now relies on. It does not constitute a new issue sufficient to justify a second application for annulment. It cannot succeed in any event, largely for the reasons given by the Associate Judge in the passage set out above.
This finding effectively disposes of the appeal, but we propose to deal briefly with Mr Dewar’s remaining grounds of appeal even though Mr Paterson did not advance the next ground before the Associate Judge.
Was Lepionka a secured creditor?
This issue arises because s 14 of the Act prohibits the Court from making an order of adjudication on the application of a secured creditor unless the creditor has established that the amount of its debt exceeds the value of its charge by more than $1,000.
Section 3 of the Act defines the term “secured creditor” as follows:
secured creditor means a person entitled to a charge on or over property owned by a debtor
This definition is narrower than the corresponding definition in s 2 of the Insolvency Act 1967, which was as follows:
Secured creditor means a person holding a mortgage, charge, lien, or security on the property of the debtor, or any part thereof, as a security for the debt due to him from another debtor, whether given directly or indirectly through another person as security for a debt due to the creditor.
(Emphasis added).
Mr Dewar argues that Mr Paterson’s status as guarantor of the Westpac loan means he had an interest in the equity of redemption in GLW’s property. He says this was sufficient to give Mr Paterson an equitable interest in the property over which Lepionka held a mortgage. Lepionka was therefore a secured creditor not only of GLW but also Mr Paterson.
We do not accept this argument, principally because it flies in the face of the plain wording of the definition. The bankruptcy proceeding was based on Mr Paterson’s failure to pay the award of costs. Mr Paterson was jointly and severally liable with GLW for payment of that debt but Lepionka held no security over any of Mr Paterson’s property. It was therefore an unsecured creditor.
In addition, although Lepionka may have held security for legal costs incurred in enforcing the mortgage, it is by no means clear that this extended to the award of costs made by the Court. Even if it did, however, this did not mean it held security over property owned by Mr Paterson.
We see the factual situation in the present case as being analogous to that in Bridgecorp Ltd (in receivership and liquidation) v Nielsen.[22]In that case a debtor opposed an application for adjudication on the basis that the creditor applicant held a mortgage over land owned by a co-covenantor. Heath J noted that the debtor had no proprietary interest in the co-covenantor’s land and concluded:
[31] There do not appear to be any cases decided under the [Insolvency Act 1967] on the circumstances in which a security might be given “indirectly” through another person as security for a debt due to the creditor. But, when used in contrast to a security on or over property owned by a debtor, the words appear clear. A deliberate decision appears to have been made to exclude securities granted by principal debtors, co‑covenantors or guarantors, in respect of property that the debtor does not own. While the term “debtor” is not defined in the Act, in the context of an application for an order of adjudication, it plainly means the person against whom the application is brought (see, for example, ss 10, 11, 13, 16, 36 and 37 of [the Act]).
[32] In those circumstances, I agree with Mr Richard Swan that there was no need for Bridgecorp to disclose the existence of a security that was not on or over Mr Nielsen’s own property.
[22]Bridgecorp Ltd (in rec and in liqu) v Nielsen [2010] 1 NZLR 820 (HC).
We reach the same conclusion in the present case.
Should the Associate Judge have exercised his discretion in favour of Mr Paterson?
The Associate Judge held that, even if he had jurisdiction to grant the application, he would not have exercised his discretion in favour of Mr Paterson. He reached that conclusion because of the lengthy delay in bringing the second application, the fact that Mr Paterson was also a bankrupt in Australia and the fact that the Official Assignee opposed the application.[23] The report prepared by the Official Assignee for the purposes of the second annulment application stated that Mr Paterson had assets of approximately $9,000 and potential liabilities of more than $7.7 million.
[23]Paterson v Lepionka & Company Investments Ltd, above n 4, at [18].
We do not detect any error in approach under this ground of appeal. All of the factors cited by the Associate Judge were plainly relevant and the decision cannot be said to be plainly wrong. This ground of appeal fails as a result.
Result
The application for leave to adduce new evidence is declined.
The appeal is dismissed.
Counsel advised that the appellant is legally aided, and we therefore make no award of costs.
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for Appellant
Bell Gully, Wellington for First Respondent
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