R C Keam Trustee Co Limited v Allo

[2024] NZHC 704

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2023-470-06

[2024] NZHC 704

UNDER

AND

the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of RICHARD GRANT ALLO

BETWEEN

R C KEAM TRUSTEE CO LIMITED

Judgment Creditor

AND

RICHARD GRANT ALLO

Judgment Debtor

Hearing:

5 December 2023

Appearances:

H Speight for the Judgment Creditor

Richard Allo, Judgment Debtor in Person

Judgment:

28 March 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 28 March 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors: Keam Standen Limited

R C KEAM TRUSTEE CO LIMITED v ALLO [2024] NZHC 704 [28 March 2024]

Introduction

[1]    R C Keam Trustee Co Limited has applied to adjudicate Mr Richard Grant Allo (Richard) bankrupt.1 The judgment debt upon which the application is brought is a costs award for $17,374.89 made following proceedings brought by the judgment creditor to remove itself as trustee of the Genesis Trust. The costs award was made by Duffy J on 21 February 2022 pursuant to a Deed of Indemnity entered into by Richard in favour of the judgment creditor in its capacity as the independent trustee of the Genesis Trust. No appeal of the costs award was filed by Richard within time or at all.

[2]    The Insolvency Act 2006 sets out the requirements that a creditor must establish before a person can be adjudicated bankrupt. Once those requirements are met, the Court has a discretion to decline to make a bankruptcy order if it is just and equitable, or if there is another reason for an order not to be made.

[3]    The judgment creditor’s evidence is that it first served Richard with the bankruptcy notice and required certificate of debt on 21 June 2023. Richard challenges whether service of the bankruptcy notice was properly effected on him.

[4]    The judgment creditor then filed these proceedings relying on the failure to comply with the bankruptcy notice, and says it served Richard on Monday 18 September 2023. Again, Richard disputes that service was valid.

[5]    Although not a matter raised by Richard, an issue arises as a document referred to as a “Certificate of Judgment/Order” apparently certifying the costs award of

$17,374.89 plus further costs of $368 was attached to the bankruptcy notice in addition to the certified copy of the sealed orders as required by the High Court Rules 2016. This increased amount of $17,742.89 is then referred to by the judgment creditor in its application for adjudication as the amount that has not been paid, rather than the correct amount of $17,374.89.

[6]The issues are therefore:

1      The judgment debtor indicated that he preferred to be referred to as Richard, so I do so in this judgment. I mean no disrespect by doing so.

(a)Has Richard been properly served?

(b)Does the purported “certificate of judgment” invalidate either the bankruptcy notice or the application for adjudication in bankruptcy?

(c)Has the judgment creditor met the requirements of the Insolvency Act?

(d)If so, is it just and equitable, or is there some other reason, for the Court to decline to adjudicate Richard bankrupt?

[7]    I begin by setting out the factual background before considering the issues raised.

Factual background

[8]    The costs award on which the bankruptcy proceedings are based arises from proceedings brought by the judgment creditor, as the corporate trustee of the Genesis Trust, seeking orders including (among others) that the judgment creditor and judgment debtor be discharged as trustees and replaced by the Public Trust.

[9]    In addition, the judgment creditor sought orders for the power of appointment in the trust deed to be amended and for orders relating to the proceeds of any sale of the trusts’ properties.

[10]   Richard was a trustee and the sole appointor and settlor of the Genesis Trust. Richard did not file a notice of opposition within the required time, but leave was granted for him to do so prior to the hearing scheduled for 2 December 2021. Lang J records in the orders issued on that date that by the time the matter was called before him, both parties were of the view, albeit for different reasons, that the orders that the applicant sought should be made. Orders were therefore made as sought, directing that Richard was to arrange for a replacement trustee to be appointed and for the properties owned by the present trustees to be transferred into the names of the new trustees. The judgment creditor agreed to cooperate in that process. In addition, the judgment creditor was to render a final account for its services and to pay the balance of any monies held by it to Richard to be held on behalf of the new trustees.

[11]   Lang J held that the judgment creditor may deduct the amount of its final account from the funds paid to Richard but may not use those funds to reimburse itself until resolution was reached. Lang J granted leave to the judgment creditor to apply by memorandum for an order permitting it to apply the funds in payment of its fees if Richard had not taken satisfactory steps to have any dispute regarding the fees resolved or determined by 31 January 2022.

[12]   The judgment creditor filed a memorandum dated 3 February 2022 in accordance with Lang J’s order seeking orders that it could apply the $23,242.75 held in the trust account of the judgment creditor towards its costs and for a further costs order requiring Richard to pay the balance of $17,209.89 outstanding plus registration fees. The judgment creditor’s memorandum attached correspondence to Richard to which the judgment creditor said Richard had not responded.

[13]   A minute was issued by Duffy J on 21 February 2022 making the orders as sought. The orders were then sealed for a total award of $17,374.89, including registration fees of $115 plus a sealing fee of $50.

[14]   A bankruptcy notice dated 26 January 2023 was served on Richard on 21 June 2023 relying on the costs award made and seeking payment of $17,349.89. In addition to disputing that the bankruptcy notice was effectively served, Richard says that this is the first time he became aware of the costs order having been made. Richard did not pay the amount demanded in the bankruptcy notice and so bankruptcy proceedings were filed on 29 August 2023.

[15]   The judgment creditor says those proceedings were served on Richard on 18 September 2023.

[16]   The matter was called in the bankruptcy list on 6 November 2023, prior to which Richard had sent a letter to the Registry challenging the validity of the bankruptcy notice and service of the proceedings on him.

[17]   Richard confirmed at the call in the bankruptcy list on 6 November 2023 that he wished to oppose the bankruptcy application and so directions were made for a

hearing on 5 December 2023. A notice of opposition was then filed by Richard dated 10 November 2023 disputing the debt on the grounds that the debt is not real and exists by way of administrative procedure and as contained in the affidavit filed in support of the notice.

[18]   Two affidavits were filed by Richard in support of his opposition dated 10 November and 14 November 2023. They are relatively difficult to follow but, to the extent that I am able to understand them, largely appear to raise issues with service and the reasonableness of the fees charged by the judgment creditor. I discuss this further below.

Has Richard been properly served?

[19]   An affidavit has been filed on behalf of the judgment creditor by a process server, Mr Bruce Currie, giving evidence that he served the bankruptcy notice and certificate of judgment together with a trespass notice on Richard on 21 June 2023. Mr Currie explains that when he asked for Richard, a man came out of the front door. Mr Currie says the man confirmed that he was Richard but that he also recognised Richard from the photo that he had been provided with, a copy of which is annexed to his affidavit.

[20]   Mr Currie says that he explained to Richard that he had two documents to serve on him but that Richard said that he would not accept them unless Mr Currie told Richard whether the names on the documents were upper case or lower case and mentioned the name his mother had given him at birth. Mr Currie says he explained to Richard that he was not sure what he meant but that if he refused to accept the documents, they would be dropped at his feet. Mr Currie says that it was clear that Richard would not allow Mr Currie to personally hand the documents to him and so Mr Currie dropped them on the ground in front of Richard.

[21]   Mr Currie has filed a second affidavit describing the steps he took to serve the creditor’s application for adjudication, the summons to debtor and the affidavit in support of the creditor’s application on 18 September 2023. Mr Currie says that he recognised Richard from the previous service and that Richard told Mr Currie he

would not accept the documents. Mr Currie says he therefore placed them on a trailer next to where Richard was standing.

[22]   Richard disputes Mr Currie’s account of what happened each time Mr Currie attempted to serve the documents in the affidavits he has filed. But from Mr Currie and Richard’s evidence, I am satisfied that Richard has been validly served. I accept that Mr Currie did not personally hand the documents to Richard but both Mr Currie and Richard confirm that Mr Currie attended at a place where Richard was, that the documents were brought to Richard’s attention and that they were left in Richard’s vicinity each time.

[23]   The purpose of the service requirements is to ensure that a document is brought to a party’s attention. This has clearly happened in this case. Richard’s concerns appear to arise from the manner in which he was served and an alleged lack of courtesy in doing so. Unfortunately, a process server’s role is often difficult and such concerns could not invalidate service even were they made out.

[24]   In conclusion on the question of service, I am satisfied that the judgment creditor has complied with the service requirements.

Does the purported “certificate of judgment” invalidate either the bankruptcy notice or the application for adjudication in bankruptcy?

[25]   Rule 24.8(3) of the High Court Rules requires a bankruptcy notice to be in Form B2 of the High Court Rules and to have a certified copy of the judgment or order attached. The bankruptcy notice in this case was in the correct form, sought payment of the correct amount, being $17,374.89, and attached a certified copy of the sealed orders made by Duffy J. However, a “Certificate of Judgment/Order” was also attached. This certificate is unnecessary. The certificate also refers to rr 23.24 and

23.25 which are the High Court Rules relating to enforcement of judgments between jurisdictions and certified copies of those judgments for the purposes of s 11 of the Reciprocal Enforcement of Judgment Act 1934.

[26]   I do not consider that attaching this extra certificate invalidates the bankruptcy notice. Section 418 of the Insolvency Act provides that proceedings under the Act cannot

be invalidated or set aside because of any defect in a step that must be taken as part of, or in connection with, the proceeding, unless a person is prejudiced by the defect.

[27]   As Associate Judge Gardiner held in Robertson Bixley Limited v Jolly, this Court and the Court of Appeal have recognised that a failure to refer to or attach a certified copy of the underlying judgment is a defect that can be excused or rectified under s 418 (or its predecessor). ² Here, a certified copy of the underlying judgment of Duffy J was attached, the defect was instead that a “certificate of judgment” was also attached. This certificate purported to certify the costs award of $17,374.89 plus subsequent costs for the preparation and sealing of the judgment of $318 and the costs of the certificate of $50. There is no proper basis for these extra costs to be claimed at that stage. However, the judgment creditor did not in fact claim those extra costs as the bankruptcy notice itself refers to the correct amount of $17,374.89.

[28]The total of the amounts referred to in the purported certificate of judgment of

$17,742.89 is however referred to in the creditor’s application for the adjudication order as the amount that Richard had failed to pay.  This amount ought to have been

$17,374.89 as stated in the bankruptcy notice. Because the amount demanded in the bankruptcy notice is correct there can have been no prejudice to Richard by this discrepancy. I therefore excuse this defect if necessary under s 418 of the Insolvency Act.

[29]   There will need to be some adjustment of the amount payable as discussed further below so that the correct amount as sought in the bankruptcy notice of

$17,374.89 and not $17,742.89 is used.

[30]   I now consider the matters that are required to be established before adjudicating a person bankrupt as set out in the Insolvency Act.

2      Robertson Bixley Limited v Jolly [2022] NZHC 286 at [18].

Requirements of the Insolvency Act and legal principles applying

[31]    Section 36 of the Insolvency Act provides that the Court may, at its discretion, adjudicate a debtor bankrupt if the creditor has established the requirements as set out in s 13 of the Act that:3

(a)the debtor owes the creditor $1,000 or more; and

(b)the debtor has committed an act of bankruptcy within the period of three months before the filing of the application; and

(c)the debt is a certain amount; and

(d)the debt is payable either immediately or at a date in the future that is certain.

[32]   Even where the requirements of s 13 are satisfied, adjudication does not follow automatically. Section 37 of the Act provides that the Court may exercise its discretion to decline to make an order adjudicating the judgment debtor bankrupt if:

(a)the applicant creditor has not established the requirements set out in section 13; or

(b)the debtor is able to pay his or her debts; or

(c)it is just and equitable that the court does not make an order of adjudication; or

(d)for any other reason an order of adjudication should not be made.

[33]   The judgment creditor relies on the Court of Appeal’s decision in Baker v Westpac Banking Corporation,4 which is the leading authority on the exercise of the Court’s discretion:5

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 set out in s 23 [the equivalent of s 13] 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. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. 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.

3      Insolvency Act 2006, s 36.

4      Baker v Westpac Banking Corporation CA212/92, 13 July 1993.

5      At 4.

[34]   In Rabobank Australia Ltd v Tootell,6 Associate Judge Osborne (as his Honour then was) referred with approval to the list of factors set out in Re Epirosa, ex parte Diners Club (NZ) Ltd and American Express International Inc.7 These factors include the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication.

[35]   In addition, s 38 of the Act provides the Court with a power to halt an application for adjudication on any terms or conditions the Court thinks appropriate.

[36]   The cases considering s 38 emphasise that the final decision is designed to balance all of the relevant factors to achieve a just outcome. Associate Judge Bell held in Bank of New Zealand v Koroniadis that the lack of any particular matters that the Court must take into account makes it clear that Parliament intended the discretion to be flexible, allowing the courts to take into account varying circumstances which may be afforded differing weight according to each case.8

[37]   The Court is required to undertake a balancing exercise for applications pursuant to both ss 37 and 38 of the Insolvency Act. This exercise seeks to recognise and reconcile the conflicting interests of the parties.

Has the judgment creditor satisfied the prima facie requirements for adjudication?

Section 13(a)

[38]   The first requirement is that the debt relied on is for more than $1,000 and that it is currently owing to the judgment creditor. Both are satisfied.

Section 13(b)

[39]   The second requirement is that the judgment debtor has committed an act of bankruptcy. The judgment creditor relies on s 17 of the Act which provides that failure to comply with a bankruptcy notice is an act of bankruptcy.

6      Rabobank Australia Ltd v Tootell [2013] NZHC 2975 at [7] and [8].

7      Re Epirosa, ex parte Diners Club (NZ) Ltd and American Express International Inc HC Wellington B498/91 and B532/91, 6 March 1992.

8      Bank of New Zealand v Koroniadis [2013] NZHC 2865 at [11].

[40]   I have found above that the bankruptcy notice was validly served on 21 June 2023. The bankruptcy notice has not been complied with so an act of bankruptcy will have occurred 10 working days from service of the notice.9

Section 13(c)

[41]   The next requirement is that the debt is for a certain amount. The costs award is recorded in the minute of Duffy J and those orders have now been sealed with the total being $17,349.89. There is no question therefore that the debt is for a certain amount.

Section 13(d)

[42]   The final requirement, “that the debt is payable either immediately or at a date in the future that is certain”, is also satisfied because the costs award has been sealed as an order of the court and is immediately payable.

Conclusion on prima facie case for adjudication

[43]   The four elements in s 13 of the Act have therefore been established. As a result there is a prima facie case for adjudication.

Is it just and equitable or is there some other reason for the Court to decline to adjudicate Richard bankrupt?

[44]   At the hearing it was clear that Richard was frustrated by the actions of the judgement creditor as trustee and did not accept that the costs claimed by the judgment creditor were properly payable.

[45]   Other than issues with service, Richard’s opposition to the application appears largely to be a challenge to the costs order made and whether the fees sought to be covered by the indemnity agreed to by Richard were reasonably incurred. These are matters that can only be addressed through an appeal of the costs award.

9      Insolvency Act 2006, s 17(4)(a).

[46]   Richard denies that he received any letters from the judgment creditor attempting to resolve costs prior to the judgment creditor’s filing of a costs memorandum which led to Duffy J’s award. Copies of these letters were provided to Duffy J together with the costs memorandum filed on behalf of the judgment creditor. In her Honour’s minute, Duffy J records that she had carefully considered the material in support of the orders sought and was satisfied the orders should be made.

[47]   It is not possible in the context of this application to determine whether Richard received the letters. The judgment creditor considers that it is unlikely he did not.

[48]   I accept there is a possibility that Richard did not receive the letters provided to Duffy J. Furthermore, Richard explained at the hearing that he had been unable to instruct a lawyer despite significant efforts. Richard did however indicate that he would have no difficulty paying the amount outstanding but that it was a matter of principle.

[49]   Richard appears to have a concern that payment of the debt will confirm that it is real. There is no question though that it is a valid debt in the first place for which the judgment creditor has a right to seek recovery unless and until the costs award is overturned on appeal.

[50]   As discussed with Richard at the hearing, payment of the debt will not prevent him seeking leave to appeal the costs award out of time.

[51]   The question is whether the possibility of an appeal ought to halt the bankruptcy application. In my view it is not appropriate to do so whilst Richard brings an application for leave to appeal out of time given that he has indicated he is able to pay and there have already been considerable delays in this matter. Furthermore, at various points in his affidavit, Richard refuses to acknowledge that the debt is owing or in fact that the debt is real. If the bankruptcy proceedings were halted while Richard brought an application for leave, there are likely to be significant further delays adding to the delays that have already occurred so far.

[52]   I consider that the fairest option, balancing the interests of both parties, is to make an order for adjudication but to stay execution of that order to allow a short period of time for Richard to pay the debt given he has indicated that he is able to pay.

Amount to be paid to include costs

[53]   Even if Richard pays the debt now, the judgment creditor is entitled to costs and disbursements on a 2B basis because the creditor has had to incur the costs of these proceedings to recover the debt.

[54]   The judgment creditor has filed a memorandum setting out the 2B costs and disbursements it seeks, amounting to $2,824.78 in costs plus disbursements of

$2,387.73 for a total of $5,212.51. The disbursement figure is higher than usual, but copies of the invoices are attached to the memorandum, and I accept that they are properly sought.

[55]   The total to be paid by Richard is therefore the judgment debt of $17,374.89 (not the total from the purported certificate of judgment of $17,742.89) plus 2B costs and disbursements of $5,212.51, totalling $22,587.40.

Orders

[56]   The judgment creditor’s application for adjudication is granted but execution is stayed to allow Richard an opportunity to pay the judgment debt of $17,374.89 plus 2B costs and disbursements of $5,212.51, totalling $22,587.40 in full by Monday 15 April 2024 at 4 pm. If not paid by that date, an order will be made in open court on Wednesday, 17 April 2024 at 9.30am declaring Richard bankrupt.

Associate Judge Sussock