Senior Trust Capital Limited v Holmes
[2024] NZHC 2060
•26 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2745
[2024] NZHC 2060
UNDER the Insolvency Act 2006 IN THE MATTER OF
The bankruptcy of Christopher Alan Holmes
BETWEEN
SENIOR TRUST CAPITAL LIMITED
Judgment Debtor
AND
CHRISTOPHER ALAN HOLMES
Judgment Creditor
Hearing: 22 July 2024 Appearances:
M J Tingey for the Judgment Creditor
M D Pascari/J C Murdoch for the Judgment Debtor
Judgment:
26 July 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 26 July 2024 at 4 pm Pursuant to r 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors / Counsel:
Couch Harlowe Kovacevich, Auckland Hamilton Locke, Auckland
M J Tingey, Auckland
SENIOR TRUST CAPITAL LTD v HOLMES [2024] NZHC 2060 [26 July 2024]
Introduction
[1] On 3 November 2023, the judgment creditor, Senior Trust Capital Ltd (Senior Trust) obtained summary judgment against the judgment debtor, Christopher Holmes (Mr Holmes) for $3,429,259.52.1 On 11 December 2023, Senior Trust served a bankruptcy notice on Mr Holmes requiring payment of the judgment.
[2] Mr Holmes has applied for an order setting aside the bankruptcy notice, relying on this Court’s inherent jurisdiction to do so to prevent an injustice. Mr Holmes has appealed the judgment, and the appeal was heard by the Court of Appeal on 23 July 2024, the day after the hearing of this application. The Court of Appeal has reserved judgment.
[3] Mr Holmes argues that it will be an injustice if the bankruptcy notice is permitted to stand and an act of bankruptcy occurs before the Court of Appeal delivers its judgment. This would result in an act of bankruptcy based on a judgment that may yet be overturned.
[4] Senior Trust argues that the bankruptcy notice should stand and any exercise of the Court’s discretion to defer an adjudication of bankruptcy should await the filing of a bankruptcy proceeding, which will then permit Mr Holmes an opportunity to apply for a halt of that proceeding.2
[5]The issues that I must determine are:
(a)What is the extent of the Court’s inherent jurisdiction to set aside a bankruptcy notice to prevent an injustice?
(b)Should the jurisdiction be exercised in favour of Mr Holmes?
1 Senior Trust Capital Ltd v Holmes [2023] NZHC 3108 at [84].
2 Insolvency Act 2006, ss 38 and 42.
The inherent jurisdiction to set aside a bankruptcy notice
[6] Section 17 of the Insolvency Act 2006 (the Act) prescribes the grounds for setting aside a bankruptcy notice where the debtor has a counterclaim, set off or cross demand equal to or greater than the judgment debt, which could not be set up in the proceeding in which the judgment was obtained. Mr Holmes does not rely on that statutory jurisdiction.
[7] In addition, the High Court has inherent jurisdiction to set aside a bankruptcy notice. The extent of the inherent jurisdiction was comprehensively reviewed by Master Kennedy-Grant in Re Wise,3 relevantly holding that:4
(c)The grounds on which the jurisdiction may be exercised are:
(i)procedural defect in the obtaining of the judgment on which the bankruptcy notice is based; and/or
(ii)the existence of arguable grounds of defence to the claim for which judgment was given;
(d)The grounds in which the jurisdiction may be exercised may extend beyond those stated in (d) [sic] to any ground on which the Court feels it necessary to intervene to prevent injustice but I make no finding on that point in this judgment;
[8] The above grounds suggest that it is necessary to demonstrate a substantive reason for questioning the soundness of the judgment.5 The issue is whether a challenge to a judgment by way of appeal may be sufficient.
[9] In practice, the issue does not arise often because s 17(1)(b) of the Act confirms that a valid bankruptcy notice must be based on a final judgment against the debtor where execution of the judgment has not been halted (stayed) by a court.
[10] Often, a party appealing a judgment will also apply for a stay of execution of the judgment under r 17.29 of the High Court Rules 2016 (HCR). If a stay of execution of the judgment is granted before the time for compliance with the bankruptcy notice expires, then there can be no act of bankruptcy.
3 Re Wise, ex parte Benecke HC Auckland B 227-228/95, 21 June 1995.
4 At 6.
5 Kiukziener v Hanover Finance Ltd HC Auckland CIV-2007-404-2896, 12 August 2008 at [29].
[11] Under r 24.10 of the HCR, the time for compliance with a bankruptcy notice is treated as extended until an application to set aside the bankruptcy notice is heard. Therefore, where an application for a stay of execution of the judgment and an application to set aside a bankruptcy notice are both filed, the granting of a stay of execution of the judgment will often be determinative of both applications.
[12] For Senior Trust, Mr Tingey submitted that the legislative framework restricts the inherent jurisdiction to stay a bankruptcy notice to cases where judgment was irregularly obtained, which is not the case here. It was argued that if there is an appeal of a regularly obtained judgment, as in this case, then a party should be restricted to applying for a stay of the judgment pending appeal.
[13] In Holmes Construction Wellington Ltd v Rees,6 Associate Judge Faire (as he then was) adjourned an application to set aside a bankruptcy notice pending determination of an appeal of the underlying judgment, relying on the inherent jurisdiction. However, the underlying judgment appeared to have been irregularly obtained.
[14] In Halifax Finance Ltd v McFarlane,7 Associate Judge Gendall (as he then was) held that an appeal could amount to the existence of arguable grounds of defence justifying an exercise of the inherent jurisdiction to stay a bankruptcy notice.8 I adopt that approach. The Judge stayed the bankruptcy notice pending the decision on the appeal, which had already been heard.9
Should the jurisdiction be exercised in favour of Mr Holmes?
[15] Mr Holmes has also filed an application for a stay of execution of the judgment. On 15 April 2024, Associate Judge Gardiner adjourned the application for a stay of execution of the judgment for call on 5 August 2024. However, the Judge directed
6 Holmes Construction Wellington Ltd v Rees HC Auckland CIV-2006-404-4219, 9 February 2007.
7 Halifax Finance Ltd v McFarlane HC Auckland CIV-2007-485-1377, 12 November 2007.
8 At [25].
9 At [28].
that the application to set aside the bankruptcy notice should be heard on 22 July 2024. The Judge said:
As the first available date [22 July 2024] falls the day before the appeal hearing, counsel have leave to approach the Registrar to request the next available date.
[16] This comment appears to contemplate that the application to set aside the bankruptcy notice might be adjourned pending determination of the appeal.
[17] One of the main issues raised by the appeal is the application of a clause in a loan agreement providing for finality of a certificate from a lender confirming the amount due under the loan agreement. Counsel were not aware of any existing Court of Appeal authority considering this type of certificate. Given that the appeal has been heard, it is neither appropriate nor necessary for this Court to delve into the merits of the appeal.
[18] If I decline to set aside the bankruptcy notice, and consequently Mr Holmes commits an act of bankruptcy, then Senior Trust has indicated that it will file a bankruptcy proceeding. It would then be open to Mr Holmes to apply for a halt of that proceeding pending delivery of the Court of Appeal’s judgment. It is very likely that a bankruptcy proceeding would be halted in those circumstances, so I see little or no prejudice to Senior Trust if Mr Holmes’ application to set aside the bankruptcy notice is adjourned to await the Court of Appeal’s judgment.
[19] If the Court of Appeal overturns the judgment, then there will be no final judgment in Senior Trust’s favour which can sustain a bankruptcy notice under s 17 of the Act. If the Court of Appeal upholds the judgment then Senior Trust can proceed with the bankruptcy notice.
[20] This is an appropriate case for the application to set aside the bankruptcy notice to be adjourned until Mr Holmes’ appeal is determined by the Court of Appeal.
[21] It does not follow from this exercise of the discretion in this case that an appeal of an underlying judgment will always justify an adjournment or stay of an application to set aside a bankruptcy notice pending determination of an appeal. Each case will turn on its own facts.
Orders
[22] Accordingly, I adjourn this proceeding to the Miscellaneous Bankruptcy List on 12 September 2024 at 11.45 am, for review.
[23]Costs are reserved.
Associate Judge Brittain